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Italy's recession caused as much damage 'as a war'

Confindustria says country still on 'a razor's edge'

19 December, 16:27
Italy's recession caused as much damage 'as a war' (By Sandra Cordon) (ANSA) - Rome, December 19 - Italy's deep recession has caused as much damage to the country as a war and, although signs of recovery may be emerging, it is too soon to declare that a recovery has begun, the head of powerful industrial employers' group Confindustria said Thursday.

"I see a lot of optimism - but beware," said Squinzi as his organization's research centre released an economic outlook suggesting recovery is imminent.

The centre also warned that Italy "is on a razor's edge" with a risk of social breakdown due to falling real wages and high unemployment and taxes, creating damage "commensurate with that from a war".

It revised down its estimates for 2013 gross domestic product (GDP) to a contraction of 1.8% from a previous forecast of -1.6%, followed by a small recovery in 2014.

"At this moment we cannot say that the recession is over and that there is a recovery," Squinzi added. "Let's see what happens in the next few months".

His caution seemed to contradict recent statements by Italy's Economy Minister Fabrizio Saccomanni, who said the recession was over after seeing statistics showing that after eight consecutive quarters of economic losses, GDP in the third quarter was flat. Building on that, on Wednesday Premier Enrico Letta said the seeds of recovery are beginning to sprout and the government expects that in the fourth quarter, Italy will return to positive growth.

All of that means the economy may have hit bottom, but it does not necessary prove the recession is truly over, said Squinzi.

Even if the economy has stopped falling, Italy must now cope with the severe damage wrought by economic weakness that dates back to 2007, he added.

"The deep recession, the second in six years is over, but the effects are not," said Confindustria's research centre. If the economy does resume growth at the pace Confindustria expects - 0.7% growth in 2014 and 1.2% in 2015 - it will take at least seven years to regain GDP levels equivalent to what Italy recorded before the global economic crisis, said Squinzi.

Evidence of the damage caused by the deepest recession in Italy since the Second World War came Thursday in the form of updated figures from the national statistical agency showing that over one million additional people were looking for work between 2008 and 2012, said Istat.

That meant a total of 2.744 million people were looking for jobs last year - the highest level since 1977, said Istat.

The national unemployment rate in October reached a record level of 12.5%, and youth under 25 have been especially hard hit with a jobless rate of over 40%.

Istat also noted that Italian hourly contract wages were flat in November with respect to October and just 1.3% higher than in the same month in 2012, making this the lowest level of year-over-year salary rises since 1992. At the same time, expenses such as taxes have been rising.

According to recent data provided by the Bank of Italy, the average tax burden climbed to 44% of GDP in 2012 compared to 42.5% in 2011. Recent reports have also shown a steady rise in poverty and in the numbers of people at risk of poverty and social exclusion.

That has contributed to an increase in social unrest including a number of protests, some violent, that have occurred in recent weeks around Italy.

Some have coalesced around the Pitchfork Movement, a loose collection of anti-austerity and anti-euro demonstrators. Confindustria also predicted that Italy's deficit-to-GDP ratio would hold steady at 3% this year, in line with the limit set by the European Union; then, fall to 2.7% next year and 2.4% in 2015.

That forecast on Thursday came as Italy's Lower House was preparing to vote on the Letta government's 2014 budget package.

While Letta has said the budget measures will help stimulate economic growth, Squinzi has criticized the budget for not doing enough to reduce labour taxes.

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