Ambrosetti Club Economic Indicator

Has Italy found the road to recovery… or just the right path?

The prospects for the next six months remain positive, although there are signs for concern due to the slow-down in China and of the Asian and emerging economies (in particular Brazil and Turkey), as well as ongoing geopolitical tensions with Russia and in the Middle East.

Has Italy found the road to recovery… or just the right path?

Italy is emerging from the economic recession phase

The first six months of 2015 closed with GDP finally on the plus side (+0.3%), as forecast by our indicators at the end of 2014. Some say that the country is finally on the road to recovery, but for the moment, we can confirm that the country is on the right … path.

The trend has turned around, but we have not fully entered into a phase of economic growth. In fact, to be able to talk about economic growth, the increase must extend across the majority of industrial sectors in Italy, to the consumption of families in the North as well as the South, and to corporate investment, not remaining anchored to levels which—although positive—are close to zero. Nonetheless, the important thing is that the first six months of 2015 were marked by Italy emerging from the economic recession phase it had been in since 2011.

Positive prospects but with signs for concern

The prospects for the next six months remain positive, although there are signs for concern due to the slow-down in China and of the Asian and emerging economies (in particular Brazil and Turkey), as well as ongoing geopolitical tensions with Russia and in the Middle East. All those markets for Italian exports which, in recent years, were what fostered the growth or staying power of a very large number of companies in the country.

The launching of the QE program by the ECB not only lowered interest rates across the curve (from maturities of 3 months to 30 years we are at an all-time low for Italy), it also protected Italy’s securities from the recent turbulence on financial markets. Since the beginning of the year, the 10-year interest rate on Italian debt has been stably lower than that of the United States.

Oil prices are at their lowest in six years and many raw materials are still at all-time lows. For the Italian economy, a manufacturing country that imports raw materials, prices at these low levels have the same effect as a mini expansionary fiscal maneuver.

One encouraging sign is the recovery in internal demand that has begun once again to make a positive contribution to the growth in GDP. And investment, which had dropped almost uninterruptedly since 2008, began to rise once again, albeit in a limited way, as we had foreseen in our March 2015 Ambrosetti Club Economic Indicator newsletter.

In terms of the Italian economy, and in particular, that of Southern Italy, the high level of outstanding debt, a hold-over from the lengthy recession, has a significant impact, blocking credit. More rapid liquidization of these loans would contribute to bolstering credit by giving a further impetus to growth.

After having predicted a recovery in the first quarter and consolidation of growth in the second, the indicators in the Ambrosetti Club Economic Indicators show mixed signals: positive for investment and the current state of the economy; stable for employment; and regression vis-à-vis current values in terms of future expectations for the economy.

The sentiment is positive but there are no signs of a further acceleration in growth

Our indicators are constructed on the basis of results obtained by a survey carried out specifically for the business community of our Club which is comprised of over 350 businessmen, CEOs and representatives of top management of leading Italian companies and multinationals operating in Italy.

From this survey we obtain a 360° perspective on information about the outlook our business community has on their business, planned investment, on sales and stock trends, new orders and the evolution in the markets for its goods and services.

The indicators should be read as follows: values above zero indicate that sentiment is positive with the forecast of an expansion in economic activity, whereas values below zero indicate that sentiment is negative and forecasts a contraction in economic activity.

The sentiment indicator for the current situation in the Italian economy is at 25 points, slightly down from the first two quarters of 2015, but close to the all-time high levels recorded during the first two quarters of the year. In fact, the positive (but limited) growth of the first six months has been consolidated, but there are no signs of a further acceleration in growth.

Economic situation in Italy

Situazione economica italiana - sett. 15

The positive sentiment shown by indicator regarding the current status of the Italian economy is weakened by the expectations for growth over the next six months.

6-month Economic Outlook

Prospettive economiche a 6 mesi - sett. 15

The indicator for the 6-month economic outlook is -7.3, entering the negative zone for the first time.

As noted in previous newsletters, it is only natural that as economic activity increases and indicators improve (which is what occurred in the first half of the year) the prospects for further improvement, compared with a higher starting point, would tend to decrease.

In this case, the negative value is a warning signal for the future. If confirmed, it indicates a potential reduction in the growth rate of the economy. What emerges is an initial sign of preoccupation from businessmen and top management of Italy’s leading corporations about being able to maintain the current (limited) level of economic growth over the coming months. Since our readings are recent, the responses we received could have been influenced negatively by the recent upheaval in the Chinese market.

Gianni Camisa, CEO of Dedagroup ICT Network, active in the information and communication technology market, notes that continued uncertainty regarding the current picture—both from an economic/financial and political/regulatory standpoint—seriously challenges the activities and future expectations of businesses. Recent events involving the Chinese market, together with the slow-down in some emerging economies, make this uncertainty even more evident and they even have an impact on companies which, because of their presence in those markets, had been less-impacted by this phenomenon in recent years.

Francesco Profumo, President of IREN, the listed multi-utility company active in the energy and gas sector as well as in integrated water services, environmental services and services for the Public Administration, notes that the positive effects of low oil prices, low cost of money and the initiatives of the ECB, are now being counterbalanced by some worrying aspects tied to a geopolitical situation that is not easy and the slow-down in emerging economies. Nonetheless, according to Francesco Profumo, the overall balance remains positive.

Stefano Folli, President and CEO of Philips Italia, is also positive about the future and sees the possibility for a recovery, including in the domestic market, and the faster the approved reforms are implemented, the greater this recovery will be. Stefano Folli believes that the process of change currently underway can be further accelerated because, today, there is widespread knowledge and awareness about this at all levels.

One important figure that has remained steady, however, is the outlook for the job market. This indicator is at 8.3, confirming the recent progress and positive results for the first six months and significantly up compared with the end of 2014 (-21.6). Nonetheless, the job market remains highly-critical and past statistics concerning the employment indicator show this.

The September figure offers a positive sign in the current context and should be seen as a consolidation of the results of the first six months which were a slight improvement on a very difficult situation.

During the crisis, unemployment has nearly doubled, from 6.2% in 2007 to 12.0% in July. Youth unemployment is 41.1%. NEETs (Not in Education, Employment or Training)—young people between 15 and 34 who are not studying, do not work and are not involved in any form of apprenticeship or training program—have risen from 19.9% in 2007 to 26.5% in the second half of 2105, for a total of nearly 3.4 million young people.

6-month Employment Outlook

Previsioni occupazione a 6 mesi - sett. 15

In this context, taking advantage of the new measures involving the job market, IREN has been very successful in implementing early retirement and 600 new, permanent hirings, totaling about 10% of its entire workforce, especially young people. Francesco Profumo is convinced that the new job market measures go in the right direction and will produce positive results. The Jobs Act facilitated a process that needed doing but it is still too soon to give an overall evaluation of the results.

The reforms need time to settle and for the effects to emerge. Patience and calm are needed to correctly evaluate the type and extent of the effects.

Stefano Folli also believes that job reform is headed in the right direction, but it is still too early to say that it has had major effects: there must be continuity and trust must be created. In addition, there have been such improvements in the efficiency of the country’s economy and businesses that there is no guarantee that an economic recovery would be accompanied by a similar increase in employment.

Despite the high level of unemployment, the supply and demand of jobs is not always in synch. At Philips, there is a gap between demand and supply in some new skills (for example, digital).

It is imperative that universities and businesses be brought into line about this because it makes no sense that with record youth unemployment, some companies are having difficulties finding the skills they need on the market.

On the other hand, the investment indicator is at an all-time high at 29.2 and confirms the positive and growth trend seen in the first six months of 2015.

Francesco Profumo reports that IREN will invest two billion euros by 2020, of which 25% in innovation, with increasing focus on the customer and service quality.

Stefano Folli is convinced that there is potential for growth in Italy and Philips will be concentrating its investments on digital technologies and training of individuals and teams.

It is common knowledge that investment is essential for companies who want to remain competitive. Investment leads to process and product innovation, which is exactly what every business must do to retain its market competitiveness.

6-month Investment Outlook

Previsioni investimenti a 6 mesi - sett. 15

These questions are tied, above all, to the fact that until now, growth was the result of factors external to the domestic economy (oil prices, exports, weakened euro, ECB quantitative easing, etc.), while structural growth requires a recovery in internal demand. Internal demand that can be relaunched only if the reform process that has been initiated continues.

The current situation on the job market hinders the development of our talent, our young people and our entrepreneurs, resulting in a serious and enormous waste of intellectual capital. To mark the anniversary of its first 50 years, The European House – Ambrosetti has decided to make available its expertise, activities and networks in support of a theme of which Italy, and Europe in general, are in desperate need: entrepreneurship. Entrepreneurship—of all types and on all levels—represents the most potent impetus for economic growth.

Without entrepreneurs, there is no growth. Without growth there are no jobs and without jobs there is no future.

As part of this, we are proud and pleased to be working with the Italian Ministry of Education and Research (MIUR) so that this message for the future is launched to young graduates of all Italian secondary schools.

And so, what are the priorities for tomorrow? Work

Francesco Profumo calls for a strong injection of trust to launch a process in which all players work together in different ways than in the past. Companies must have the courage to hire and invest in young people who bring with them the renewal required by both industry and the nation. And young people must be more interested and courageous to have quality training and be more proactive in finding solutions which, even if not optimal, kick-start the process and get them back into the workplace.

Plus, work is not created by decree, but by promoting those conditions that generate work. Stefano Folli is very clear on this point. Work is created by facilitating doing business in Italy, for both Italian companies and multinationals. To do this always requires the same things: simplification, reducing red tape, rendering the public administration more efficient, digitalization and stability, and so on. Everyone knows what we need. Now it just needs to be done, in other words, how and how soon.


In summary, the Ambrosetti Club Economic Indicators show a consolidation of the positive first quarter sentiment regarding the economy overall, employment and investment. However, some questions about the ability to maintain growth in the near future have emerged.

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