Oecd Economic Surveys : Italy 1979-1980.

86 Pages·5.743 MB·English

by  OECD

ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT
ORGANISATION OE COOPERATION ET OE 0 E V E L 0 P P E M E N T ECONOMIQUES
BASIC STATISTICS OF ITALY
THE LAND
Area (1 000 sq. km) 1979 301.3 Population ofmajorcities,
Agricultural area (1000sq. kin) 1.1.1976: Thousands
1976 207.2 Rome 2874
Woodland (1 000 sq. km) 1976 63.1 Milan 1 722
Naples 1221
Turin 1 199
THE PEOPLE
Resident populationatend-1978
(thousands) 56829 Labour force, 1978 21731
No. of inhabitants per sq. km 189 Employment, 1978 20160
Netnatural increase in population: in agriculture 3090
annual average 1974-1978 (thous.) 257 in industry 7633
Net rate per 1 000 inhabitants in services 9437
(average 1974-1978) 4.6
PRODUCTION
Gross Domestic Product in 1978 Origin ofthe gross domesticproduct
(billions of lire) 220743 in 1978 (at market prices)
GDP per head in 1978 (US S) 4590 percent oftotal:
Grossfixed capitalformation: Agriculture 7.1
Per cent of GDP in 1978 18.8 Industry 35.4
Per head in 1978 (US $) 860 Construction 7.5
Other 50.0
THE GOVERNMENT
Publicconsumption in 1978 Internal public debt (ratio to central
(percentage of GDP) 16.2 government currentrevenue
Current revenue ofgeneral in 1978) 187.8
government in 1978 General government investment
(percentage of GDP) 37.1 in 1978 (percentage
of total investment) 9.4
FOREIGN TRADE
Exportsofgoods and services Imports of goods and services
as a percentage of the GDP, 1978 27 as a percentage ofthe GDP, 1978 24
Main export categories, as a percentage Main import categories, as a percentage
oftotalexports, 1978: oftotal imports, 1978:
Machinery Foodstuffs
Fabrics and textile goods Machinery
Chemical products Metals, ores and scrap
Foodstuffs Crude oil
Automobiles and spares Chemical products
THE CURRENCY
Monetary unit: Lira Currency units per USdollar,
average of daily figures:
Year 1979 830.92
January 1980 804.47
Note An international comparison of certain basic statistics is given in an annex table.
OECD ECONOMIC SURVEYS
ITALY
MARCH 1980
ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT
The Organisation for Economic Co-operation and Development
(OECD) was set up under a Convention signed in Paris on 14th
December I960, which provides that the OECD shall promote policies
designed:
to achieve the highest sustainableeconomicgrowth and employ¬
ment and a rising standard ofliving in Member countries, while
maintainingfinancialstability,andthustocontributetothedeve¬
lopment of the world economy,
tocontributetosoundeconomicexpansioninMemberaswellas
non-membercountries in theprocess ofeconomic development;
to contribute to the expansion of world trade on a multilateral,
non-discriminatory basis in accordance with international
obligations.
The Members ofOECD are Australia, Austria, Belgium, Canada,
Denmark, Finland, France, the Federal Republic ofGermany, Greece,
Iceland, Ireland, Italy,Japan, Luxembourg, the Netherlands, NewZea¬
land,Norway,Portugal,Spain,Sweden,Switzerland,Turkey,theUnited
Kingdom and the United States.
TheSocialistFederal RepublicofYugoslavia isassociated in certain
work oftheOECD, particularlythatoftheEconomicandDevelopment
Review Committee.
TheannualreviewofItaly
by the OECD Economic andDevelopment Review Committee
tookplace on 18th February 1980
©OECD, 1980
Queriesconcerningpermissionsortranslationrightsshouldbeaddressed
to:
Director ofInformation, OECD
2, rue André-Pascal, 75775 PARIS CEDEX 16, France.
CONTENTS
Introduction
I Recent trends 6
Demand and output 6
Employment and labour market 11
Prices and incomes 13
II Balance of payments 20
Foreign trade 20
Invisibles and current balance 26
Capital movements and exchange rates 27
III Economic policy 29
Budget policy 30
The institutional framework 30
Budget policy in 1979: forecasts and outturns 32
Budget policy in 1980 36
Monetary policy 39
The choice of policy instruments since 1973 39
Recent trends in monetary policy 41
Energy policies 47
IV Short-term prospects and policy conclusions 49
Latest results and short-term prospects 49
Policy conclusions 52
Annexes
A The revision of national accounts 57
B Foreign trade statistics 60
C Definitions of public sector deficit 61
D Economic policy measures 62
Statistical annex 66
TABLES
Text
1 Demand and output 6
2 Households' appropriation account 8
3 Savings and investment 10
4 Recent labour-market trends 12
OECD Economic Surveys
5 Main price indicators 15
6 Trends in wages 17
7 Balance of payments 21
8 Import elasticity 23
9 Medium term trends of exports by product group 24
10 CentralGovernment revenue and expenditure on a cash basis 32
11 Enlarged public sector transactions on an administrative basis 33
12 Enlarged public sector transfers to enterprises 36
13 Consolidated accounts ofGeneral Government 37
14 Trends in total domestic credit to the private sector 41
15 Monetary base and counterparts 42
16 Transactions of the banking system 43
17 Breakdown of bank credit 44
18 Breakdown of total energy requirements 47
19 Forecasts for 1980 51
Statistical annex
A National accounts 66
B Quarterly national accounts 67
C Price indices 68
D Employment 69
E Wages and salaries 70
F Public sector accounts 71-72
G Money and credit 73-76
H Foreign trade and reserves 77
I Commodity breakdown of foreign trade 78
J Area breakdown of foreign trade 79
DIAGRAMS
1 Selected indicators of demand and output 7
2 Comparative trends in consumer prices 14
3 Trends of prices and costs in manufacturing industry 15
4 Trends of average import propensities 22
5 Export price indicators 24
6 Exchange rates 28
7 Interest rates 46
INTRODUCTION
The recovery which began atthe end of 1978 continued in 1979fsustained by a
marked growth of private fixed investment and private consumption. Production
fluctuated in the courseoftheyearin connection with strikes, butduetotheimprove¬
ment in recentmonthsreal GDPshouldhaveincreasedbynearly 5 percent.Thebrisk
rate of activity has implied some growth in employment although the rate of un¬
employment did not decline. The combination of strong demand pressure, rises in
rents and cost increases due to rises in oil prices and unit labour costs has meant an
acceleration ofinflation and the cost-of-living index rose by nearly 20 per cent in the
courseofthe year. Wagegrowth was morethanproportionatetotheriseinprices.As
a result ofthelatest collective agreements signed inJuly and ofindexation, thegrowth
ofthe total wage bill for the year as a whole should have been approximately 20 per
cent, compared with an averageincreasein consumerprices ofabout 15 percent. The
trade balance deteriorated rapidly inthe courseoftheyear. Butforthe wholeof 1979
the currentbalance should register a 6 billion dollar surplus dueto avery swift risein
invisibles receipts. On the other hand, the capital account has swung into deficit, due
tonetoutflowsconcentratedin thesecondhalf-year.Theeffectiveexchangerateofthe
lira appreciated slightly in the first three quarters and depreciated in the fourth thus
regaining the level of a year earlier.
The aim ofbudgetpolicy in 1979 wastoreducethepublicdeficitas apercentage
of GDP and to shift a greater proportion ofexpenditure to investment. An attempt
was also made to improve budgetary procedure. In fact, although the total deficit of
the enlarged public sector was reduced from a little over 15 per cent ofGDP in 1978
to about43.2 per centin 1979, currentexpenditureincreasedfasterand capitalexpen¬
diture slower than foreseen by the government. Because of the risks which have
progressively emerged for 1980, theItalian authorities shifted theirfiscalpolicy stance
in autumn 1979 towards support for activity and a curbing of costs, but the draft
budget has not yet been approved. The main measures announced are a further
budgétisation ofsocial security contributions, the raising ofthe tax threshold for per¬
sonal income and increased tax allowances in respect of dependants- Provision has
also been made for an important housing-aid programme. Monetary policy was
moderately expansionary up until the third quarter of 1979, with interest rates stable
up to September. It was then considerably tightened in the latter part ofthe year to
check the outflow of short-term capital: interest rates were raised in two stages and
ceilings set on bank credit growth these ceilings are currently having a more
restrictive impact now that inflation has accelerated again.
The rate ofgrowth ofdemand and output in the first halfof 1980 will probably
weaken due to the expected slowdown in world demand, the impact ofthe deteriora¬
tion in the terms of trade on real national income and the effect of inflation on
domestic demand. In the second halfoftheyearthere mightbe an absolutedecline in
activity. The unemployment rate is likely to go on rising. Despite the more subdued
rate ofactivity, the rise in public utility charges induced by the recent steep increases
in oil prices and indexation arelikelytoresultin an acceleration ofinflation in thefirst
half ofthe year. Inflation might ease somewhat in the second halfof 1980 with the
6 OECD EconomicSurveys
weakening of aggregate demand ifthe expected deceleration ofimport prices mater¬
ialises. However, the year-on-year rise in consumer prices should be around 19 per
cent. Finally, the current balance may be expected to show another surplus in 1980,
though considerably less substantial than in 1979, with a trade balance deficit more
than compensated by a very large invisibles surplus. But forecasts are clouded in un¬
certainty with regard toboth worlddemand and domestic developments. Forthetime
being a more marked downturn in activity and/or a stronger acceleration ofinflation
cannot be excluded.
PartI ofthis Survey describes recenttrends indemand, output andemployment,
and prices and wages since the beginning of 1979. Part II deals with the balance of
payments. The main aspects ofeconomic policy in 1979, monetary and fiscal policy
and other economicpolicymeasures, andguidelinesfor 1980arediscussedin PartIII.
Finally, Part IV presents the short-term forecasts and some economic policy con¬
clusions.
I RECENT TRENDS
Demand and output1
After a period ofrelatively more marked fluctuations between 1975 and 1977,
the time pattern ofactivity has notsincebeenmuch differentfrom thatofotherEuro¬
pean OECD countries. The recovery which began in 1978 was initially triggered by
exports, but, as from the end ofthe year, itwas also sustained by therapid growth of
Table 1 Demand and output1
Current Percentage change in volume at annual
prices, rates and 1970 prices
billion
lire 1979
1978 1977 1978 1979 1978 II I II
Private consumption 135 347 1.5 2.6 4.9 3.6 5.2 5.6
Collective consumption 36 303 2.2 3.5 1.7 3.9 1.0 1.0
Gross fixed investment 41 406 0.0 -0.4 4.3 5.5 3.7 4.3
of which: Machinery
and equipment 17 131 -0.1 -1.9 6.8 8.5 5.8 8.8
Construction 24269 0.2 0.7 2.3 3.3 1.8 2.3
Final domestic demand 213 056 1.4 2.2 4.3 4.0 4.2 4.6
Stockbuilding3 1 854 -1.2 -0.6 1.1 1.6 0.8 1.0
Total domestic demand 214910 0.0 1.5 5.4 5.7 5.1 5.6
Exports of goods and services 59616 8.5 10.8 9.5 15.4 6.5 10.0
Imports of goods and services 53 783 0.0 8.1 13.4 25.7 7.8 13.7
Foreign balance' 5 833 2.0 1.1 -0.1 -0.7 0.2 -0.1
GDP at market prices 220743 2.0 2.6 4.9 4.6 4.9 5.2
GDP implicit price deflator 18.9 13.3 16.1 13.7 16.2 18.0
Industrial production 1.1 1.9 6.5 6.4 5.9 7.2
1 Standardised OECD definitions.
2 As a percentage of GDP in the previous period.
Sources: Ministry of the Budget, Annual Report on the Economic Situation; IS"TAT, provisional
estimates for 1979; Secretariat estimates for half-yearly changes n 1979.
1 Thetrendsdiscussedinthissection arebasedonthenewnational accountsseriespublishedby
the Central Statistical Institute(ISTAT)fortheperiod 1960-1978in which thelevelsofmain aggregates
have been revised substantially upwards; cf. technical note in annex. Estimates for 1979 are based on
provisional ISTAT data. Official figures for 1979 will be published on 31st March, 1980.
Italy
Diagram 1 Selected indicators ofdemand and output1
%
20 i
Expatsolgoods
15 - ' andservices
Totaldomestic
10 - demand
5 - r
\ _.(cid:9)
0 -
\ / Contributiono<
-5 - * foreignbalance \ / -5
V
/ -10
/ Grossfixedinvestment
-15 -
-20 L J -20
20 20
Industrialpieduction
- 10
/r Industiialproduclion
OECDEurope - 5
GDP
- 0
/
/
-10 - -10
-'5 l_ J -15
I II i il I n I M I II
1975 1976 1977 1978 1979
1 Volume change on previous period at annual rates.
Sources: ISCO, Quarterly Accounts; ISTAT, Monthly Bulletin ofStatistics; OECD, Main
Economic Indicators.
private consumption and non-residential investment and a positive contribution of
stockbuilding. The rate of activity probably accelerated further in the second halfof
1979, especially inthelastfew months ofthe year. The rate ofgrowth ofGDPforthe
year as a whole should have been about 5 per cent.
In 1979 households' disposable income accelerated markedly to 21 per cent,
compared with 17.6 per cent in 1978. Compensation ofemployees2 accelerated con¬
siderably because ofthe renewal ofwage contracts and indexation. But the strongest
2 In 1979,the increase in compensationofemployeesandthetotalwage bill coincide. However,
becauseofthebudgétisationofsomesocialsecuritycharges,in 1977and 1978compensationofemploy¬
ees(22.2and 15.6percentrespectively)roseataslowerratethanthetotalwagebill(26.6and 16.0per
cent respectively). The budgétisation measures have an impact on total labour costs but not on net
employees' pay.
OECD Economic Surveys
contribution to income growth came from property and enterprise earnings reflecting
the role of small firms in the present recovery. On the other hand, social security
transfers slowed down significantly in 1979 mainly because ofthe system ofindexa¬
tion of pensions,3,but their increase was nevertheless stronger than forecast. After
three years during which it rose considerably due to the anticipation oftaxpayments,
the elasticity ofdirect taxes to income should have declined to unity in 1979. Social
security contributions should have increased faster than the total wagebillbecauseof
the raising ofcontributions payed by the self-employed and the reduction in evasion.
On the whole, despitetheaccelerationofinflation, real disposableincomeincreasedby
some 5Va per cent compared with 4.3 per cent in 1978. Thus the acceleration of
private consumption* in 1979 4.9 per cent against 2.6 per cent in 19783* was
accompanied by a small rise in the savings rate. Public consumption accelerated
somewhat in 1978 slowing down considerably in 1979, butonthewholeappearstobe
following the trend of the last few years.
Table 2 Households' appropriation account
Billion Percentage change
lire from previous year
1978 1978 1979
Compensation of employees 123 821 15.6 20.2
Gross income from property and entrepreneurship 74298 20.9 25.8
Social security and other transfers 40725 25.0 16.2
Total income 238 844 18.7 21.2
Direct taxes 17 619 35.5 21.2
Social security contributions 37 165 17.5 22.2
Disposable income 183 890 17.6 21.1
Consumption 135 247 15.7 20.6
Savings ratio 26.4 26.7
Consumption implicit price deflator 12.7 15.0
Sources: ISCO, provisional estimates; OECD Secretariat.
Gross fixed investment fell by 0.4 per cent in 1978, but the annual averagecon¬
ceals apositiveintra-yearlytimepattern. Following averysharpfallinthesecondhalf
of 1977, fixed investment staged a rather hesitant recovery in thefirsthalfofthe year
which gained considerable momentum in the second half. In virtually all sectors, with
3 Theindexationofpensionstopricesiscalculated atthebeginningofeachcalendaryearforthe
yearendingsixmonthsearlier. InJanuary 1979,indexationwascomputedforaperiodofdeceleratingin¬
flation (July 1977 to July 1978).
4. National consumption,accordingtostandardised OECDdefinitions. Italiannational accounts
utilise the concept ofdomestic consumption,whichincludestourism expenditure accordingtothe EEC
system.
5 A breakdown by category ofproducts is available for domestic consumption (i.e. inclusive of
tourists' expenditure) in 1978, which increased by 2.9 per cent. Thefastest increases were recorded for
durablegoods(4.7percent),andespeciallyradioandtelevisionsets(8.2percent).Foodconsumptionin¬
creased as the average, while lower than average growth took place in entertainment services (1.9 per
cent)and automobilepurchases(0.6percent). AccordingtotheBankofItaly,theweaknessofthelatter
category is explained by the postponement ofpurchases by consumers in face ofa sharprisein direct
fiscalpressurewhichisperceivedastemporary.Theargumentisapparentlysupportedbythefactthatthe
slowdown in carsalessincethesecondhalfof1976hascoincided withchangesintaxregulationswhich
have brought about once-and-for-all increases in direct tax revenue.