Estudos Económicos
Italy

Italy

Population 60.7 million
GDP 30507 US$
A3
Country risk assessment
A2
Business Climate
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Synthesis

major macro economic indicators

  2015 2016 2017(f) 2018(f)
GDP growth (%) 0.9 1.1 1.5 1.3
Inflation (yearly average, %) 0.1 -0.1 1.4 1.2
Budget balance (% GDP) -2.6 -2.5 -2.1 -1.8
Current account balance (% GDP) 1.5 2.6 2.5 2.5
Public debt (% GDP) 131.5 132.0 132.1 130.8

(f): forecast

 

SECTOR RISK ASSESSMENTS

 

STRENGTHS

  • Reform effort (labour market, banking sector, insolvencies...)
  • Manufacturing industry still important
  • Renewed competitiveness and stronger export sector
  • Improvement in the financial position of businesses
  • High-quality infrastructure
  • Considerable tourism potential

WEAKNESSES

  • Private and public debt levels still high, very negative net external position
  • Duality of the labour market, high unemployment and high structural unemployment
  • Significant proportion of small, under-productive enterprises
  • Fragmented political landscape, unity of the country weakened by regions’ push for autonomy
  • Regional disparities
  • Low administrative efficiency

Risk assessment

Consolidation of the recovery in 2018

Italy’s economic recovery was confirmed in 2017, after several consecutive years of lacklustre growth. Favourable financing conditions and higher foreign demand have helped revive investment, especially in the manufacturing sector. Businesses have also benefited from the incentives under the Industrial Plan 4.0 aimed at accelerating investment in industrial innovation. Business failures are also declining, except in the construction sector. Household consumption benefited from the recovery in the labour market, but was less dynamic than in 2016, hit by long-term slower growth in purchases of durables. Growth is expected to slow slightly in 2018, but the economy will continue to show momentum. The contribution of cyclical effects are, however, likely to be less positive. The stronger euro will reduce the contribution of net exports to growth. Consumption will continue to slow, because of less sustained wage and job growth. Inflation will dip as a result of the stronger euro and lower energy costs. Tax incentives provided for in the 2018 budget will, however, drive investment. Positive growth should be observed in the construction sector after several quarters of downturn, thanks to a recovery in demand for residential housing and a slight increase in public investment.

 

The banking system is getting stronger but risk has not been eliminated

The health of the banking system improved sharply during the course of 2017 after the state recapitalised Monte di Paschi di Sienna Bank and wound up two large Venetian banks. The restoration of confidence in the banking system should facilitate access to credit for Italian businesses, which will continue to benefit from advantageous financing terms. But the very structure of the banking system, in which the medium-sized regional banks suffer from considerable exposure to non-performing loans remains problematic, especially as the ECB is expected to tighten its guidelines for banks regarding non-performing loans and to demand a ratio of 100% coverage for bad debts.

The upturn in activity in 2017 enabled Paolo Gentiloni’s government to bring the public deficit down to 2.1% in line with the target set by the Stability Programme. Civil service wage moderation (salary freeze since 2010) and cuts to health spending have, moreover, helped reduce spending despite the EUR 10-billion bill for the bank bailout. Despite encouraging growth forecasts for 2018, the government has chosen to maintain the deficit target of 1.6% in 2018, compared with 1.2% fixed under the Stability Programme. It is, however, likely that growth will be slightly higher than expected. The slowdown in consumption and the postponement of the hike in VAT from 2018 to 2019 will limit revenue growth, while spending will remain unchanged. Italian public debt will remain high, but weak interest rates will be reflected in lower interest payments.

The current account surplus will be maintained in 2018 but the rise in imports generated by higher demand for foreign goods will outpace that of exports.

 

Parliamentary elections in 2018

Following the resignation of Matteo Renzi, Italy’s centre-left leader, the Democratic Party (PD) appointed Paolo Gentiloni to manage current business while waiting for the parliamentary elections scheduled for spring 2018. Italy has meanwhile introduced a new electoral law in preparation for the elections. Passed in October 2017, the Rosatellum Law came out of an agreement between the PD and the two main right-wing opposition parties, Matteo Salvini’s Lega Nord (Northern League) and Silvio Berlusconi’s Forza Italia. The polarisation of Italian political life between the three blocs - namely the right, the left and the Five Star Movement (M5S) after the debacle of the PD during the referendum (over constitutional reform) would, under the former law, have sharpened institutional blockages. But the Rosatellum Law will give preference to a first-past-the-post method corrected by a measure of proportional representation with a minimum required threshold for entering parliament of 3% of the national vote for single parties and 10% for coalitions and will actually penalise the M5S. However, the populist party, founded by Beppe Grillo and led by Luigi Di Mario, is still climbing in the opinion polls, despite the setbacks experienced in some localities, and represents the second political force in Italy and is gaining ground on the socialists. The PD is in a weakened position in parliament despite good economic results. It is true that Matteo Renzi still has a hold over the Democratic Party, of which he took over the leadership in spring, winning the primaries, but defections within the centre-left are multiplying. The overwhelming favourite remains Berlusconi’s Party, the Forza Italia, which is making a big comeback in Italian politics. The victory of the Italian right-wing in Sicily, with the support of the Lega Nord and the Fratelli de Italia, bolsters the former prime minister’s lead, even though he has been caught up in and under investigation for various scandals.

Last update : January 2018

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.

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