On Brink of Recession, Italian Executives Snub Rome, Take Action
(Bloomberg) -- Like many Italian corporate executives, Federico Visentin is just trying to get on with the job.
Visentin, who runs metal components manufacturer Mevis SpA in northern Italy, can’t afford to be distracted by government infighting in Rome. The global economic outlook has become gloomier, demand in one of his biggest markets is under pressure and Italy itself is at risk of recession.
“We aren’t just waiting for the storm to pass,” he says at the company’s headquarters in Rosa, near Vicenza. “We reduced our costs without renewing temporary contracts and shifted even more production to our plants in Slovakia and China.”
Italy’s 2018 story was dominated by fiscal loosening, a jump in sovereign borrowing costs and a bitter fight with the European Commission. That hit sentiment and investment, and left Italy as the euro area’s slowest-growing economy. Political uncertainty remains an issue, with executives in the north concerned about the differences between the two parties in the ruling coalition: the League based in their regions and the Five Star Movement, strongest in the south.
While Italy is used to persistent political instability, Visentin and others across the country’s industrial heartland have another problem — a global slowdown that’s hitting demand in the export-reliant economy. Manufacturing confidence fell to the lowest in more than two years in January, according to a report on Wednesday.
Leading one of Italy’s top suppliers to German car producers, Visentin is experiencing the negative trickle-down effect from weaker growth in China that’s also been seen in U.S companies such as Caterpillar Inc. As auto sales in the world’s second-largest economy suffer, that’s filtering through to companies like Mevis. Its first-quarter orders are down 20 percent compared with a year earlier.
“Fears over lower growth in Germany inevitably reflect on the companies of this part of Italy, not only those which are directly exposed to that market,” said Carlo Carraro, an economist and president emeritus of Ca’ Foscari University of Venice. There's also a “widespread view that the government budget does nothing to help the economy and employment,” he said.
The Bank of Italy sees the economy growing just 0.6 percent this year, less than half the pace of the euro zone. It’s forecast to have shrunk for a second quarter at the end of 2018. The national statistics bureau will release its GDP estimate for the period on Thursday.
Even Matteo Lunelli of Ferrari F.lli Lunelli SpA, who says his firm — known for its sparkling wines — had an “excellent” 2018, is closely checking the pace of export demand.
“For the first time our distributor in Germany recently mentioned concerns over the prospects for consumption there,” Lunelli says, speaking from his company’s cellars in Trento, not far from the highway connecting Italy to Austria.
In the budget, businesses didn't welcome the lower retirement age nor a new income-support tool for the poor. They wanted lower taxes and more action on infrastructure to get the economy match fit.
Italy is heading into the latest downturn on a weaker footing than many of its peers. It’s ranked 17th in Europe for competitiveness by the World Economic Forum, behind Germany, France and Spain, and output remains below its pre-crisis peak. All the other major European economies have long regained lost ground.
Gianpietro Benedetti, chairman of steelmaker and machinery producer Danieli & C Officine Meccaniche SpA based in Buttrio, Friuli, says Italy is falling behind, and “losing the race against nations like the Czech Republic or Poland which have lower labor costs and taxes.”
He's not alone in that view. According to Enrico Carraro, chairman of vehicle parts and tractor producer Carraro SpA, “our manufacturing sector is still less efficient and productive than in other countries.”
What Our Economists Say:
“The Italian economy probably shrank once more in the final three months of last year, sending the country into a technical recession. A resolution to the budget battle with Brussels came too late to help demand. The good news is that spending likely began to increase again in the new year.”
—David Powell, Bloomberg Economics
Back in Rosa, Visentin is awaiting the completion of the crucial Pedemontana Veneta highway, next to the green fields opposite his office. In the meantime, he’s investing in training staff and funding research into new products, including seat designs for driverless cars.
Matteo Zoppas, head of the business lobby Confindustria in Veneto, says his business colleagues in the region should be very cautious about the outlook.
Italy had a short-lived recovery that saw “few big companies doing well and most many small- or medium-size ones struggling,” said Zoppas, whose family owns mineral-water producer Acqua Minerale San Benedetto SpA. “We are entering a period of difficulty.”
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