Exports rose in Italy towards the end of 2009

The Expected Default Frequency indicator in Italy is still well above its long-term level, indicating elevated default risk.

Madrid - 12-abr-2010

After quarterly GDP growth of 0.6% in Q3 of 2009, Statistics Italy [ISTAT] reported a decrease of 0.3% for Q4. For the whole of the year, GDP declined 5.0% year-on-year: slightly more than the 4.6% estimated after the positive third quarter. In the first 11 months of 2009, exports declined 22.1% year-on-year, but have improved again since the end of 2009. While exports to EU neighbours increased slightly - by 1.4% year-on-year in December 2009 - those to non-EU countries rose 4.7% in January 2010, with notable increases to China [38.9%] and Turkey [50.6%].

According to ISTAT, the industrial production index decreased 0.8% in Q4 of 2009 compared to Q3, and, in the same period, production index also declined in the construction sector [-0.9%]. Private consumption remained muted, with retail trade recording a mere 0.1% increase in the last quarter compared to the Q3.

In 2009, the construction industry recorded the highest year-on-year increase in corporate insolvencies [31.3%], followed by general manufacturing, energy production and distribution [25.6% - with rubber/plastic, shoes and leather manufacturing, and mechanical engineering the worst hit] and finance, real estate, renting and IT [see chart below]. In contrast, the food sector recorded a 7% decrease.

According to the Bank of Italy, conditions for the supply of credit to firms remained tough in late 2009. Despite the relaxation of lending conditions for larger companies in Q3 of 2009, conditions for riskier loans were tightened by increasing margins. Italian Banks are still careful when granting new business loans, mainly because of rising corporate bankruptcies. They took advantage of the drop in the use of credit lines during 2009 to reduce credit authorisations and also, opportunistically, to massively increase the spread, leading to many tense negotiations between banks and businesses. Those small companies with capital intensive activities, in particular, will continue to suffer from loan restrictions, especially in the light of a scarcity of new orders.

Modest recovery in 2010

For the whole of 2010, the International Monetary Fund forecasts a modest 1% recovery of GDP growth, thanks to the residual effects of government investment and exports, which the Bank of Italy estimates will rise by around 3% year-on-year, although domestic demand will remain weak.

Crédito y Caución does not foresee an improvement in the insolvency trend before the end of the first quarter, when the economic cycle could reach the real turning point. For the whole of 2010, the Company expects a higher number of insolvencies than in 2009, with many weak players falling by the wayside after the recovery gains momentum. In December and January 2010, the Expected Default Frequency [EDF] indicator in Italy fell 18 basis points, after it had increased 16 basis points between September and November. Therefore the median EDF is still well above its long-term level, indicating elevated default risk.

View by sectors

In 2009, the metals industry performance deteriorated, with a steep reduction in pricing levels. In particular, production of steel bar products decreased 35-40%, while flat steel production fell 47%, with a negative spike in March and June 2009. The payment behaviour of the metals industry improved in the last quarter of 2009, due to a slight recovery in the sector.

For basic metals, Crédito  y Caución predicts that prices will flatten out again by mid 2010. Demand will slow down in the course of the year, as China had already started to restock at the end of 2009. Furthermore, several steel consuming industries, such as construction and automotive, are expected to perform less well as fiscal stimulus packages come to an end. While this will affect exports of Italian metals, the situation could be different for the domestic market. In fact, even if demand from the global automotive sector suffers, it has to be noted that Italy is not a large car producer. About 50% of the Italian automotive market is made up of imported vehicles, and therefore reduction in demand would not be that severe for the steel sector.

For the construction sector, as a major consumer of metal products, there are two issues that will influence the market. On the one hand, there are a few recently started large infrastructural projects that will continue in 2010, and, on the other, the overall contraction of the commercial and residential subsectors will continue. The combined effect will be a very slow recovery of the steel market.

Other sector to focus in is the chemicals industry. In Q3 of 2009, overall production decreased around 10% year-on-year, having dropped about 20% since January 2009. For the whole of 2009, production is forecast to decrease 14.1%. Crédito y Caución saw the payment behaviour of the chemicals industry improve in the last quarter of 2009, due to a slight recovery of the sector triggered by decreasing inventories and additional orders. Claims in the chemicals sector level off between October 2009 and January 2010.

Italys chemical industry is heavily dependent on the performance of the countrys general manufacturing industry, which shows signs of only modest recovery - below the EU average. Growth in 2010 will therefore depend mainly on increasing demand from abroad. However, recovery of the sectors main EU export markets will remain slow, and competitiveness [not just with the US] is under pressure due the Euro/Dollar exchange rate. That said, Italys chemical exports are forecast to grow 4% year-on-year in 2010. Assuming a slow recovery of internal demand [2.5%], chemical production in Italy will increase 2.8%, which is not enough to compensate for the two previous loss making years [-6.0% in 2008 and -14.1 in 2009]. At the end of this year the production level will still be 15% lower than in 2007.

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