Italy 1986-1987.

102 Pages·1987·6.114 MB·English

by  OECD

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
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OECD ECONOMIC SURVEYS
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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