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Italy 1986-1987. PDF

102 Pages·1987·6.114 MB·English
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ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT ORGANISATION OE COOPERATION ET DE D E V E L 0 P P E M E N T ECONOMIQUE ®@®@ ©us® OECD ECONOMIC SURVEYS A"T^ r .'.) V.A / - Cor-'! * C<: J Ç . > ITALY AUGUST 1987 ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT Pursuanttoarticle 1 oftheConventionsignedinParison 14th December, 1960,andwhichcameintoforceon30thSeptember, 1961,theOrganisation for Economic Co-operation and Development (OECD) shall promote policies designed: - toachieve the highestsustainableeconomicgrowthandemployment andarisingstandardoflivingin Membercountries,whilemaintaining financial stability, and thus to contribute to the development ofthe world economy; - to contribute to sound economic expansion in Member as well as non-membercountries in the processofeconomicdevelopment; and - to contribute to the expansion of world trade on a multilateral, non-discriminatory basis in accordance with international obliga¬ tions. The original Member countries of the OECD arc Austria, Belgium, Canada, Denmark, France, the Federal Republic of Germany, Greece, Iceland, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain,Sweden,Switzerland,Turkey, the United Kingdomand the United States. The following countries became Members subsequently through accessionatthedatesindicatedhereafter:Japan(28thApril, 1964),Finland (28thJanuary, 1969), Australia (7thJune, 1971) and New Zealand (29th May, 1973). The Socialist Federal RepublicofYugoslavia takes part in some ofthe work ofthe OECD (agreement of28thOctober, 1961). Public également en français. ©OECD, 1987 Application for permission toreproduce or translate all or part ofthis publication should be made to: Head of PublicationsService, OECD 2, rue André-Pascal, 75775 PARIS CEDEX 16, France. TABLE OF CONTENTS Introduction 7 I. Recent trends 8 Domestic developments 8 Transactions with the external sector 15 II. Economic policy 21 Fiscal policy 21 Monetary policy 25 III. Short-term forecasts 28 IV. Financial markets 32 Financial balances and saving by sector 32 International influences 35 Structure ofthe financial system 36 The efficiency of the system 43 Innovation and regulatory reforms 47 Initial results of the reforms and monetary policy implications 51 V. Conclusions 58 Notes and references 62 Annexes I. Revision of national accounts 65 II. Financial markets : background information 68 III. Main economic policy measures 78 Statistical annex 81 TABLES Texte 1. Demand and supply 9 2. Gross fixed capital formation by sector and product 10 3. Employment and the labour market 12 4. Wage indicators 15 5. Breakdown of changes in the current balance 16 6. Foreign trade volumes ]6 7. Balance of payments 18 8. The central government budget 22 9. Consolidated general government account 23 10. Financing of the treasury deficit and public debt 24 11. Money supply and counterparts 25 12. Short-term forecasts 29 13. Trend in "financial" and "real" integration 36 14. Cross-country comparison of bank deposits as a percentage of GDP 39 15. Cross-country comparison of corporate self-financing ratios 41 16. Costs and margins in the banking system 46 17. The public sector: financing of the deficit and debt structure 48 Annex I 1. Resources and uses account 66 2. Value added by industry 66 3. Distribution of national income 67 4. Indicators of economic performance 67 Annex 11 1. Financial balances by sector : actual and adjusted for inflation 68 2. Composition of households' assets : international comparison 68 3. Costs and margins in banking in some OECD countries 69 Statistical annex A. Selected background statistics 82 B. National accounts 83 C. Quarterly national accounts 84 D. Prices indices 86 E. Employment 87 F. Wages and salaries 88 G. Public sector accounts 89 H. Money and credit 91 1. Balances of payments 93 .1. Commodity breakdown of foreign trade 94 K. Area breakdown of foreign trade 95 DIAGRAMS Quarterly trend of supply and demand 1 1 2 Comparative trends of consumer prices 14 3 Measures of relative competitive position 17 4 The lira exchange rate 19 5 Interest rates 26 6 Business indicators 30 7 Relative size of the financial system 33 8 Financial balances and saving by sector 34 9 Households' financial assets 40 10 Firms' financial position 42 11 Credit controls and resource allocation 44 12 Stockmarkct capitalisation: cross-country comparisons 50 13 Monetary policy targets and outturns 55 14 Real interest rates 56 BASIC STATISTICS OF ITALY THE LAND Area (1 000sq.km) 301.3 Populationofmajorcities, Agriculturalarea (I 000sq.km) 1984 264.0 1985: Thousands Rome 2826 Milan 1 515 Naples 1 206 Turin 1 035 THE PEOPLE Residentpopulation. 1985 Thousands (thousands) 57 202 Labourforce, 1986 23467 No.ofinhabitantspersq.km 190 Employment,.1986 20826 Netnatural increaseinpopulation: inagriculture 2 241 annualaverage 1982-1985(thous.) 62 in industry 6821 Netrateper 1 000inhabitants inservices II 794 (average 1982-1985) 2.7 PRODUCTION GrossDomestic Product in 1986 Originofgrossdomesticproduct (billionsoflire) 894362 in 1986(at marketprices) GDPperheadin 1986(US$) 10486 percentoftotal: Grossfixedcapital formation: Agriculture 4.6 PcrccnlofGDPin 1986 20.1 Industry 30.4 Perhead in 1986(US$) 2 109 Construction 5.9 Other 59.0 THE PUBLICSECTOR Publicconsumption in 1986 Publicdebtin 1986 (percentageofGDP) 16.2 (percentageofGDP) Current revenueofgeneral General government investment governmentin 1986 in 1986 (percentage (percentageofGDP) 39.4 oftotal investment) 16.6 FOREIGNTRADE F.xporlsofgoodsandservices Importsofgoodsandservices asapercentageofGDP, asa percentageofGDP, 1986. (OECD.SNA) 18.7 1986, (OECD,SNA) 18.1 Mainexportcategories,asapercentage Main importcategories,asa percentage oftotalexports. 1986(SITC): oftotal imports. 1986(SITC): Machinery(71 to77) 25.3 Foodstuffs(0) 12.9 Fabricsand textilegoods(65) 6.1 Machinery(71 to77) 15.8 Chemicalproducts(5) 7.2 Metals,oresandscrap(67 +68) 5.8 Automobilesandpans(78 + 79) 8.3 Mineral fuels(3) 17.5 Mineralfuels(3) 2.8 Chemicalproducts(5) 11.0 THECURRENCY Monetaryunit: Lira CurrencyunitsperUSdollar, averageofdailyfigures: Year 1986 I 491.0 June 1987 1 316.2 Note: Aninternationalcomparisonofcertainbasicstatisticsisgiven inanannex table. ThisSurveyisbasedon theSecretariat'sstudypreparedfor the annual review ofItaly by the Economic and Development ReviewCommitteeon29thJune1987. Afterrevisions in the lightofdicussionsduringthe review, final approval ofthe Surveyforpublication was given by the Committeeon28thJuly1987. TheprevioussurveyofItalywasissuedinJuly1986. INTRODUCTION Italy has enjoyed continued expansion ofoutput and employment since the first halfof 1983, accompanied by steadily slowing inflation, but also rising unemployment. In 1986 the current external position improved significantly as a result of the fall in oil and commodity prices. The increase in income accruing from the terms-of-trade improvement (almost 3 per centofGDP) wentchieflytothepublicsector,whose borrowing requirementasa percentage ofGDPdeclined by 1 point,andtothecorporatesectorwhoseprofitsincreased markedly.The fall in oil prices was not fully passed on to consumer prices and, despite a further decline in inflation in 1986, Italy's performance in this area still lags behind that of its main trading partners. Construction excepted, all domestic demand components supported growth, whereas the net contribution of foreign trade volumes was negative. Economic policy has on the whole played a neutral to slightly stimulatory role in 1986 and looks set on a more expansionary course in 1987. Fiscal policy, interalia through the award ofsubstantial wage increases, is likely tostimulate demand. The general government borrowing requirement may at best stabilize asa percentageofGDP. Money supplygrowth targetsdonotappeartoberestrictiveandtheoutturnsfortheearlymonthsoftheyearpointto an overshooting. Interest rates will probably remain high owing to the external constraint resulting from the inflation differential between Italy and its trading partners, a constraint that the liberalisation ofthe foreign exchange market may exacerbate in theshort run. GDP growth, year-on-year, is expected to be higher in 1987 than in 1986 and inflation lower. Losses in competitiveness and the domestic demand growth differential between Italy and its main tradingpartners are likely toslim thecurrent balance surplus and the rate ofinflation could cease todecline in thecourseofthe year. GDPgrowth could gradually slow until the end of 1988,thoughstill remainingataroundtheOECDaverage,withunemploymentcontinuingto increase. High and growing unemployment, a large publicsector borrowing requirement and the fact that inflation ishigherthan in mostofItaly's EMSpartnersrepresentseriouschallenges foreconomicpolicy. Inrecentyears,theneedtoadjusttheItalianfinancial markettoexternal constraints given the imperatives of the PSBR has prompted the introduction of major institutional reforms, and of new financial instruments. This process which, interalia, has already led to the abandonment ofcredit controls and progress in foreign exchange market liberalisation, is studied in a special section of this Survey. This analysis is preceded by a review of recent economic trends, economic policies as well as short-term prospects. I. RECENT TRENDS Loweroil prices combined with the depreciation ofthe dollar had a beneficial effect on theItalianeconomyin 1986.The 11.3 percentimprovementinthetermsoftraderesultedina current account surplus amounting to 0.8 per cent ofGDP and helped bring down inflation stillfurther.Buttheincreasednationalincomeaccruingfromtheimprovementinthetermsof trade primarily translated intohighercorporateprofits and a declineof 1 percent ofGDP in the public sector deficit. In 1986, as in 1985, real GDP rose by 2.7 per cent. While Italy's growth was among the highest recorded by the seven major OECD countries, and around one-quarter of a point higher than the EEC average, its relative performance was less satisfactory on the inflation front -four percentage points higher than the average for the seven major countriesand three points higher than the EECaverage. In 1986, as in the two previous years, GDP growth was led by buoyant domestic demand, while the external contribution to growth remained negative as import volumes rose steeply. Employment (on the new national accounts concepts) expanded by 0.8 per cent in 1986, but this was not enough to prevent a further rise in unemployment1. Domestic developments Demandandoutput Householdconsumption,whichhadbeguntopickupinearly 1985,roseby3.2percentin realtermsin 1986andacceleratedastheyearprogressed. Demandwasparticularlybriskfor non-food products, notablyautomobiles, up 5.6 percentin 1986afterclimbing 11.1 percent in real terms theyearbefore. Thehouseholds'appropriation account, whichcould shed light onthereason forthisslowdown,isnotyetavailableonthenewnationalaccountsbasis. None the less, it is noteworthythat total wages (netofsocial insurance contributions) did not rise nearly as fast in 1986 (6.6 per cent) as in 1985 (12.1 per cent), giving only a very small increasein real terms.Thiswasprimarilyduetothefactthatthetriennialwage negotiations scheduled for 1986 were heldoverto theend oftheyearand even toearly 1987; wages thus reflectedonlytheeffectsofindexation (morelimitedinscopesince 1985)andthe0.4 percent increase in dependent employment. Growthofhouseholds'realdisposableincomewas,however,boostedbyfactorsthatwere more buoyant than wages. Income from property and entrepreneurship benefited from the redistributionofnationalincomeduetotheimprovementinthetermsoftrade,aswellasfrom exceptional factors (such as the payment in 1986 of part of the interest due in 1985 on government securities), which may have boosted non-wage incomes by 13 to 14 per cent2. Last, the ratio ofdirect taxes to households' gross income was probably unchanged or even slightly down in 1986; increases due to the reform of the income tax treatment of the self-employed were probably offset by the April inflation adjustmentofincome tax on wage earnings. Table 1. Demandandsupply Percentagechangesfrompreviousperiod,atannualrates Volume(1980prices) Currentprices 1984 1985 1986 1985 1986 trillion lire1982 I II 1 11 Privateconsumption 342.5 2.2 2.7 3.2 3.3 3.5 2.8 3.7 Collectiveconsumption 88.8 2.0 3.5 3.0 3.4 3.4 2.8 2.8 Grossfixedinvestment 121.7 4.4 3.3 1.2 4.8 -0.5 2.4 0.6 Machineryandequipment 43.2 8.9 7.4 3.1 11.0 0.4 5.2 1.7 Construction 66.3 0.6 -0.5 -0.7 -1.0 -1.5 -0.3 -0.6 Finaldomesticdemand 553.0 2.7 3.0 2.7 3.6 2.6 2.7 2.9 Stockholding' 6.5 1.8 0.2 0.6 -0.4 0 0.3 1.6 Totaldomesticdemand 559.5 4.4 3.1 3.2 3.2 2.5 3.0 4.4 Exportsofgoodsandservices 114.2 7.6 4.0 3.1 -0.7 6.1 3.8 -1.2 Importsofgoodsandservices 128.6 11.3 5.3 5.1 3.3 3.4 5.3 6.2 Foreignbalance1 -14.4 -0.9 -0.4 -0.5 -0.9 0.5 -0.4 -1.8 GDPatmarketprices 545.1 3.5 2.8 2.7 2.3 3.1 2.6 2.7 Industrialproduction 3.4 1.2 2.7 0.7 0 6.6 -1.9 GDPatmarketprices 10.2 8.8 8.0 10.1 8.3 8.6 6.8 DecompositionofGDPgrowth Agriculture -3.6 0.4 1.7 -1.8 8.9 -3.8 6.0 Industrytotal 3.7 1.5 3.4 0.5 1.9 4.3 3.0 Manufacturing 4.2 1.5 3.3 -0.3 2.1 4.6 1.8 Construction 0.3 0.3 -0.2 0.3 -0.4 -0.2 -0.1 Services 5.1 4.9 3.2 4.5 3.6 2.8 2.6 1. ChangesexpressedasapercentageofGDPinthepreviousperiod. Source: 1STAT,QuarterlynatkxiaTaccounts. Growth offixed investmentslackened in 1986 tojust over 1 percent in real terms. This overall picture, however, conceals contrasting trends according to category of investment. Investment in the construction sector declined (by 0.7 per cent), continuing the almost unbrokendownwardtrendaveraging 1.4 percentannuallysince 1980.Thisdeclineis largely attributable to residential construction, with non-residential construction and civil engi¬ neeringprogrammes recoveringslightly since 1984. According to ISCO's latestsix-monthly investment survey published in February 1987, the share of productive capacity enlarging investment increased from 20to 26per cent between 1985 and 1986. After picking up well over the period mid-1982 to mid-1984, growth ofinvestment in machinery, equipment and transportdisplayedanunderlyingdownwardtrend.Thisisprimarilyascribabletopurchases of transport equipment, particularly aircraft, investment in industry continuing to grow at almost the same pace in 1985 and 1986 (see Table 2). Thetrendofproductiveinvestmentmaybeputdowntoanumberoffactors.Thepick-up in capacityenlarging investment in part substituted investment in building for purchases of equipment. This could betoken an easing ofthe effort to streamline the productive system, particularly in the major industrial sectors (automobiles, chemicals, food, clothing) after a periodofactive restructuring. At thesame time, uncertainty as tothe future source, nature

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