By Walter Paternesi Meloni and Antonella Stirati
Italy’s Double Dip and its Consequences
The 2008 crisis severely hit the Italian economy, as can be seen in Figure 1; yet the initial fall was not much larger than Germany’s.
Figure 1. Italy’s real GDP (billions of constant Euros)
Source: OECD Economic Outlook.
Both countries have a large manufacturing sector, which is known to be more sensitive to fluctuations than the service sector. After the crisis, a recovery had begun, but was interrupted by the European “spread crisis” (that is, falling prices and increasing interest rates on Italian and other ‘peripheral’ countries public bonds in the financial markets) and subsequent inception of more severe austerity policies, that caused a fall in current expenditure and public investment (as documented by Figures 2 to 5) and an increase in overall tax revenues of 18 billion euros in the period 2011-2013, mostly owing to an increase in indirect txation. As a consequence of such measures GDP fell sharply (-73 real billion euros, i.e., -4.5 percentage points), despite some recovery in exports. Industrial production fell much more than GDP: it dropped by one fourth between 2007 and 2009, then recovered 7 points in 2010-11, but fell again subsequently and in 2015 was still slightly below the 2009 level.
Figure 2. Italy’s government current expenditure, including interest payments (billions of constant Euros)
Source: OECD.Stat (COFOG).
Figure 3. Italy’s public investments (billions of constant Euros)
Source: OECD.Stat (COFOG)
Figure 4 and 5. Italy’s government current expenditure by function (billions constant Euros).