Economic Studies
Italy

Italy

Population 60.8 million
GDP per capita 35,335 US$
A3
Country risk assessment
A2
Business Climate
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Synthesis

major macro economic indicators

  2013 2014 2015  2016(f)
GDP growth (%) -1.7 -0.3 0.6 1.1
Inflation (yearly average) (%) 1.2 0.2 0.1 0.2
Budget balance (% GDP) -2.9 -3.0 -2.6 -2.7
Current account balance (% GDP) 0.9 1.9 2.1 2.3
Public debt (% GDP) 128.9 132.5 132.6 133.0

 

(f) Forecast

STRENGTHS

  • Relatively high economic weight of industry
  • High-end products (fashion, home wares, food products, mechanical engineering)
  • Moderate debt levels of private sector; high savings capacity
  • Variety of tourism assets

WEAKNESSES

  • Weak profitability of small companies and banks
  • Inadequate private and public investment
  • High level of structural unemployment (9%), particularly among the young (40%)
  • Low participation rate of women / lack of facilities for early childhood
  • Sizeable informal economy (20%)
  • Inefficient public sector
  • Backward Mezzogiorno region

Risk assessment

Companies continue to struggle

After a prolonged recession, the Italian economy returned to moderate growth. However, the recovery remains weakened by the subdued world growth, as well as the rise of uncertainty and financial market volatility on the back of the UK vote to leave the European Union (EU). Economic growth is expected to be around 0.9 % in 2016. Despite sluggish activity in the second quarter and the damage from the earthquake that struck central Italy on August 24, the main vector for this will be domestic demand which benefits from growing confidence. With low inflation and easier credit, household consumption should be boosted by the improving jobs situation and the unemployment rate, below 12% in 2016, in step with the reforming of the labour market (the Jobs Act in 2015) Investment is also expected to record a slight growth, on average, for the year as a whole. However, banking issues could limit the investment recovery, unless there is a strengthening of banks and companies balances sheets. The moderate growth in European demand, the weakness of the euro and the fall in imported oil and gas prices should offset the rise in imports, consequent on strengthening domestic demand, and the depressed state of emerging markets, helping to produce a small positive contribution from trade. Insolvencies have decreased by 30% on the first quarter of 2016 compared to the previous year. Nevertheless company profitability will remain weak, especially among the smaller companies that form the basis of the economic fabric. These continue to be subject to a high level of tax and charges, an ineffective public sector, in particular in the centre and south of the country, and the unwillingness to lend by the banks. Despite reforms, the legal system is slow (taking up to seven years for liquidation).

 

Massive public debt and delayed budgetary reform

The government is focusing on recovery ahead of fiscal consolidation. Moreover the European Commission has allowed more budgetary flexibility; this represents a budgetary margin of 0.85% of GDP in 2016. In addition, the Commission has granted a margin of 0.1 point for the security costs and to manage the migratory crisis. The public debt is likely to remain high and reach 133 % of GDP this year, thus constraining the government’s ability to manoeuvre. The government is looking to increased growth and lower rates to boost receipts and limit interest payments on the debt, currently running at 4% of GDP. The country will remain vulnerable to a loss of confidence by the market and a change in European monetary policy, although the relatively long term maturity of the debt and the fact that residents hold 53% of it, limit the risk.

 

A current account surplus

Despite the energy deficit equal to 2.5% of GDP, trade in goods and services is in surplus by 3% of GDP. This performance relies on famous brands, a top-end positioning and niche products in a variety of sectors as diverse as industrial and electrical equipment, clothing, leather goods, optics, jewellery, food products, home wares, automotive vehicles and medicines. Tourist income is significant thanks to the extensive tourism heritage, but this is offset by a sizeable deficit in terms of transport. The balance of trade surplus easily covers debt interest payments and the remittances of foreign workers.

 

A weakened banking system

Non-performing loans represent a high level of the portfolio 18% (EUR 360 billions). Some banks in particular are at risk: from January to July 2016, the Italian bank stock index has lost 50% of its value. Deeply affected, Monte dei Paschi di Siena has recorded a loss of 80% of its stock price over the past year. The ECB approved the rescue plan, involving the sale of 9.2 billion euros of non-performing loans and to raise capital worth of 5 billion. Unsurprisingly, the stress test results, issued on July 29th, underscored the weakness of the bank (in the sample MPS is viewed as the most at risk).

 

Reforms to solve the problem of governmental instability and legislative inertia

The reforms of the Prime Minister, Mr. Renzi, depend on a fragile centre-left coalition between the Partito Democratico (PD) and Nuovo Centro Destra (NCD) parties, as well as occasional allies. The improvements in the economic situation and the impossibility of winning a clear majority with the current proportional voting system discourage political formations from seeking fresh elections. The dispersal of the right and the divergences between its leaders, S. Berlusconi for Forza Italia and M. Salvini for Lega Nord, are not likely to encourage the NCD to join them. This could all change in July 2016 with the entry into force of the new electoral law, known as Italicum, which includes a majority bonus system, then followed in the autumn 2016 with the holding of the referendum on the ending of the bicameral system that would turn the Upper House into a consultative chamber. However, the Italicum may be amended. Moreover, Mr Renzi weakened his position by personalizing the referendum. If he does not succeed, he is at risk of being overturned. Currently (September 2016), the populist Five Star Movement, which won the municipal elections in Roma and Turin a short time ago, is catching up with the PM’s party in the polls for the parliamentary elections (normally due in 2018).

 

Last update : September 2016

Payment

 

Trade notes (cambiali) are available in the form of bills of exchange or promissory notes. “Cambiali” must be duly accepted by the drawee and stamped locally at 12/1000 of their value, being issued and payable in the country. They are stamped locally at 9/1000, being issued in the country and payable abroad, and finally stamped at 6/1000 in the country if stamped beforehand abroad, with a minimum de 0.50 €.

 

In case of default, they constitutede factoenforcement orders as the courts automatically admit them as a writ of execution (ezecuzione forzata) against the debtor.

 

Signed bills of exchange are a fairly secure means of payment but are rarely used on account of the high stamp duty, the somewhat lengthy cashing period and the drawee’s fear of damage to his reputation caused by the recording and publication of protested unpaid bills at the Chambers of Commerce.

 

Since the rules on cheque amounts were relaxed in April 1990, payment by cheque has become commonplace. Besides the date and place of issue, cheques established in amounts exceeding 1,000 EUR and intended to circulate abroad must bear the endorsementnon trasferibile(not transferable) since they can only be cashed by the beneficiary.

 

To make the use of cheques more secure and efficient, the new banking provisions reaffirm that, since 1st September 2006, any bank or postal cheque issued without authorisation or with insufficient funds will subject the cheque drawer to administrative penalties and listing by the CAI (Centrale d’Allarme Interbancaria), which automatically results in exclusion from the payment system for at least six months.

 

Bank vouchers (ricevuta bancaria) are not a means of payment, but merely a notice of bank domicile drawn up by the creditor and submitted by him to his own bank for presentation to the debtor’s bank for the purposes of payment (the vouchers are also available in electronic form, in which case they are known as “RI.BA elettronica”).

 

Bank transfers are widely used (90 per cent of payments fromItalyare made by bank transfer), and in particular SWIFT transfers, as they considerably reduce the period of processing. The bank transfer is a cheap and secure means of payment once the contracting parties have established mutual trust.

 

Debt collection

 

As elsewhere, an out-of-court settlement is always preferable to legal action. Demands and telephone dunning are quite effective, as are on-site visits that provide an opportunity to restore dialogue between supplier and customer, and so to conclude a settlement, but in this case (personal visit) a specific license has to be gathered.

 

Settlement negotiations focus on payment of the principal, plus any contractual default interest as may be provided for in writing and accepted by the buyer.

 

Where there is no such agreement, the rate applicable to commercial agreements concluded after 8 August 2002 (Decree-Law of 9 October 2002) is the six-monthly rate set by the Ministry of Economic Affairs and Finance by reference to the European Central Bank’s refinancing rate, raised by 8 percentage points, till 30.06.2015.

 

Failing an out-of-court settlement with the customer, the type of legal action taken will depend on the type of documents justifying the claim.

 

Based on “cambiali notes” – bills of exchange, promissory notes – or cheques, creditors may proceed directly with forced execution beginning with a demand for payment (atto di precetto) served by a bailiff preliminary to attachment of the debtor's moveable and immoveable property barring receipt of actual payment within the allotted time.

 

The resulting auction proceeds will be used to discharge outstanding claims.

 

Creditors can obtain an injunction to pay (decreto ingiuntivo) via a fast-track procedure if they can produce, besides copies of invoices, written proof of the claim’s existence by whatever means or a notarized statement of account.

The injunction issued by the court will also specify the amount of legal costs, according to an established schedule, payable by the debtor. A forty-day period is granted to the defendant to lodge an objection.

 

Since 4 July 2009, ordinary summary proceedings are introduced (procedimento sommario di cognizione) for no complicated disputes which can be settled upon simple presentation of evidence. Sitting with a single judge, the court determines a hearing for appearance of the parties, and delivers a provisionally executory ruling if it acknowledges the merits of the claim; the debtor however has 30 days to lodge an appeal.

 

Lacking the requisite supporting documents or in case of objection to the “decreto ingiuntivo”, a creditor must take ordinary legal action to establish his right to payment, a process still slow despite several reforms of the civil procedure. Such lawsuits can take up to three years, although the applicant may obtain, during that period, a provisional payment order equivalent to a writ of execution.

 

The new civil procedure code, effective since March 2006 and July 2009, is intended to speed up the pace of proceedings by reducing the procedural terms, by imposing strict time limits on the parties for submitting evidence and making their cases, by introducing written depositions in addition to oral depositions.

Insolvency trend Italy
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