italy - economy and politics 50 days after the referendum

Italy - Economy and Politics

50 days after the Referendum

European Policy Dialogue

The referendum suicide of Renzi

2

Who plays the cards?

„Italy is like a house of cards“

Cover 2013 Cover 2013

3

• New Election Law

• Consolidation Banking Sector

• Youth Employment

• Migration

• Economic growth

• 60th Rome Treaty

• Presidency of G7 Summit

Political Agenda

2017

Cover 2016

4

German-

Italian

Business

Facts and Figures

0

20.000.000

40.000.000

60.000.000

80.000.000

100.000.000

120.000.000

2007 2008 2009 2010 2011 2012 2013 2014 2015

Import from Germany Export to Germany

Strengthened trade relation: Italian export record to Germany

Italian-German Trade

6

Source: AHK graphic; Destatis

-30.000.000

-20.000.000

-10.000.000

0

10.000.000

20.000.000

30.000.000

40.000.000

50.000.000

60.000.000

70.000.000

2007 2008 2009 2010 2011 2012 2013 2014 2015

EXPORT to Italy IMPORT from Italy Trade deficit

Positive development: Trade deficit reduced by almost 10%

Italian-German Trade

7

- 18,1% - 8,4%

Source: AHK graphic; Destatis

1. Machinery and equipment 2. Textile production and clothing 3. Chemicals and pharma 4. Metals and metal products

Top 4: German Exports to Italy (> 50%)

8

Source: AHK graphic; ISTAT

1. Chemicals and pharma 2. Energy raw material 3. Electronic equipment 4. Metals and metal products

Top 4: Italian Exports to Germany (~ 50%)

9

Source: AHK graphic; ISTAT

48

50

22

27

40

48

41

63

64

45

4

9

15

9

15

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Status of Business

Business outlook

Economic development

Employment

Imvestments

better/higher consistent worse/lower

Italy’s saldo of Business Outlook is 6 points higher than the European average But: German companies more sceptical about the economic development

AHK Business Outlook 2016/17

10

Source: AHK Business Outlook 2016/2017

1. Economic policy framework (65,2%) 2. Demand (45,7%) 3. Financing (26,1%) 4. Legal certainty (19,6%)

AHK Business Outlook 2016/17

11

Greatest risks in Italy for the economic development of German companies

Source: AHK Business Outlook 2016/2017

Economic

Policy

Framework

Opportunities and Threats

• 2nd most important industry nation

in Europe (~18%)

• 8th largest country in the world

• 4th largest country in Europe

• Doing Business 2017: Rank 50

• Backbone of Italy's economy:

hidden champions, manufacturing

industry, design & luxury

Facts about

Italy's Economy

13

-6,0

-5,0

-4,0

-3,0

-2,0

-1,0

0,0

Budget deficit continuously <3%

Italy's Financial Performance

14

Source: Italian Gov., OECD, de.statista.com

0,0

20,0

40,0

60,0

80,0

100,0

120,0

140,0

Public debt continuously >100%

-6

-4

-2

0

2

4

6

2008 2009 2010 2011 2012 2013 2014 2015 2016

Italy Germany EU-28

The impact on GDP due to the recession

Italys Economic Development

15

Source: Eurostat

Reform Monitor

16

• Budget consolidation: e.g. austerity

package, debt brake since 2014

• Reform of the social system:

retirement with 66/65 years

• Labor Market Reform: "Job Act“

• Judicial reform: e.g. new measures

on bankruptcy

• Simplification of public

administration: e.g. eGovernment

• Creation of GACS (Warranty

Securitization of performing loans)

• Fiscal incentives: Plan 4.0

Italian

Financial

Sector

Crucial factor for growth

Strengths

• Italian household have high wealth

and saving attitude (1st in Europe)

• Well capitalized (exception: MPS)

• Simple business models: focused

on Retail and SMEs (>4m)

Risks

• Low number of top worldwide

companies (9 in Fortune 500)

• Physical distribution:

30k branches, 300k employees

• Impact of 6years recession (2009-

2014): High stock of NPLs

The Italian

Banking market

18

Source: ABI, Covip, Borsa Italiana

The impact of 6 years of recession (2009-14): High stock of NPLs

The dead hand of bad debt

Italys NLP as Share of GDP

NLPs by Region

Source: IMF, blackrock.com

19

Impaired Loans: EUR 360bn due to recession (GDP decrease of 10%)

The dead hand? How bad is the debt?

20

EUR 150bn

Past due & Unlikely to pay

EUR 123bn

Loan Loss Provisions (ca. 60%)

EUR 50bn

With additional real estate collaterals worth EUR

85bn

EUR 37bn

With additional personal guarantees

EUR 210bn

NLPs on a gross basis

EUR 87bn

Net NLPs

+ +

Source: Bank of Italy, DB Research

41,8 35,3

24,4

8,7 7,6 2,9

14,7

73,1

0,0

10,0

20,0

30,0

40,0

50,0

60,0

70,0

80,0

Germany Swiss Northern Europe Italy

Level 3 Assets NPL

Debt structure comparison of European Banks with Italy’s Banking system

Perspectives on hidden risks in toxic assets

21

Source: R&S Mediobanca

Banking System Restructuring • Significant number of banks

expected to be merged / bought in the next 3 years

• No. of bank employees and branches expected to be significantly reduced in the next 5-10 years

• Major restructuring costs Digital and IT Investments • Unicredit and Intesa already digital

leader in Europe (retail and SME) • Leverage digital leadership in the

Mid Cap Corporate space

Future of the Italian

Banking system

22

Source: ABI, Covip, Borsa Italiana

50 days

after the

Referendum

…we worked

on a common German-Italian

Industry partnership 4.0

Jörg Buck

CEO

German-Italian Chamber of

Commerce (AHK)

Via Gustavo Fara 26 - 20124 MILANO

Tel. +39 02 67913.202

buck@ahk-italien.it

www.ahk-italien.it

24

Italy - Economy and Politics

50 days after the Referendum

European Policy Dialogue