Our comprehensive assessment of Italy's operating environment and the outlook for its leading sectors are formed by bringing together a wealth of data on global markets that affect Italy, as well as the latest industry developments that could impact Italy's industries. This unique integrated approach has given us an impeccable track-record for predicting important shifts in the markets, ensuring you’re aware of the latest market opportunities and risks in Italy before your competitors.
Italy Country Risk
Italy will return to modest growth in 2014 and 2015, although a weak labour market and ongoing contraction in credit growth will continue to impede a more robust recovery.
We view positively the urgent structural reform agenda of new Prime Minister Matteo Renzi. However, we remain sceptical that he will be able to avoid the chronic instability, political infighting and rigid vested interests that that have in the past impeded reform efforts.
Lack of significant structural reform in previous years seriously jeopardises Italy's long-term growth trajectory, and raises the risks that the public sector debt burden will become unsustainable.
Even if reforms aimed at addressing Italy's decline in productivity growth and external competitiveness are passed, an ageing demographic profile will make debt consolidation efforts...
Italy Industry Coverage (18)
BMI View: Our outlook for the Italian agribusiness sector has turned more bearish, as dry conditions in Europe, high operating costs and bleak economic prospects have taken a toll on the grains, dairy and livestock sectors. Our long-held view has favoured the grains segment over rice, and we expect conditions to be particularly favourable for wheat and corn over the forecast period to 2018. We expect poultry and cheese to outperform, mainly bolstered by the expected economic recovery, changes in consumption habits and opportunities for expansion into export markets.
Corn production growth to 2017/18: 27.5% to 10.2mn tonnes. Production is expected to rise on low...
Vehicle sales in Italy over the first 10 months of 2014 grew 5.2% year-on-year (y-o-y) to 1.27mn units. This recovery in sales emerged alongside a marginally brighter macroeconomic environment in Italy compared to the recessionary 2013 period. In 2014, we expect this resurgence across the market to continue as low base effects and pent-up demand take hold. Accordingly, we forecast 3.8% growth in vehicle sales over the year.
BMI forecasts 3% growth in passenger car sales in 2014 as improvements in consumer sentiment during the year filter through to the autos sector. However, though consumer sentiment had shown signs of recovery toward the end of H114, our Country Risk team highlights that consumer spending is likely to remain stagnant going into 2015. While we do expect private consumption growth to enter positive territory in 2015, it will remain at a sluggish 0.6%. Consequently, we forecast only a slightly higher...
Defence & Security
Italy Defence & Security
BMI expects Italy to spend up to USD26.8bn on defence in 2015. The level of defence spending has fluctuated in recent years, reflecting Italy's current financial situation with the government attempting to reduce public expenditure. While defence spending in absolute terms is increasing, we forecast defence expenditure to remain stable at 1.4% of GDP over the remainder of our forecast period until 2018.
Italy's defence industry association is expected to undertake a more proactive role in promoting the country's defence exports following the appointment in September 2014 of Guido Crosetto, a former undersecretary of defence in the Italian government, to the post of chairman of the association. Crosetto was acknowledged to have worked particularly hard to promote Italian defence exports during his time in government.
Italy is still evaluating the AgustaWestland AW149 medium-lift utility helicopter...
Food & Drink
Italy Food & Drink
BMI View: Following thirteen consecutive quarters without growth, we forecast real GDP growth in Italy to reach -0.2% and 0.6% in 2014 and 2015. According to our forecasts, Italy's economic output will remain well below pre-crisis levels over the medium-to-long term. We forecast that annual real GDP growth will not break 1% over the next 10 years, and both public and private sector consumption will remain depressed. With one of the highest household savings rates in Europe prior to the crisis, and among the lowest private debt burdens, private consumption has not been a strong driver of GDP growth in the past decade. We do not expect this...
Italy Freight Transport
Italy's freight mix is set for a relatively subdued 12 months in 2015 with our revising down of 2014 and 2015's real GDP growth estimate and forecast respectively as the sector's fortunes continue to reflect those of the wider economy. Italy's protracted economic recovery failed to gain traction in H114 and now faces strong headwinds from a weakening regional growth outlook.
Proving detrimental to Italy's freight sector is the fact that external account rebalancing will continue to be sub-optimal in light of weak domestic and external demand. This is characterised by an ongoing contraction of imports as opposed to strong exports or improved external competitiveness. Nevertheless, export growth will remain uninspiring and unable to drive additional current account surplus widening.
In 2015, the outperformer in terms of year-on-year (y-o-y) growth is set to be rail freight at 2.28%, ahead of both road and air freight (1....
Following years of economic downturn, the general Italian economy is set to see some minor growth in 2015 (0.4%). Due to its volatility, we do not see this to immediately translate into growth in the construction sector, which overall is forecast to stagnate in 2015. Nonetheless, new investment opportunities could arise through the government's proposed initiatives, as an increase in public spending would provide funds for necessary infrastructural projects.
Key Trends And Developments:
Italy's economy is forecast to return to growth in 2015 (0.4%), though the construction sector is expected to continue to stagnate before returning to growth in 2016.
In November 2014, the municipal water supplier Romagna Acque-Societa delle Fonti S.p.A. opened bids (until...
BMI View: Italy's insurance industry continues to be hampered by the subdued domestic economic outlook and there remains little scope for substantial growth within the insurance market during our forecast period to 2019. Although the future looks more promising for the life sector, where premiums have been on the increase, declines within dominating non-life lines, such as motor, will create a drag on overall growth in the short term at least. As such many leading firms are looking overseas for future growth potential.
2015 is expected to show an overall decrease in terms of gross premiums written, in part due to the decline of the euro against the strengthening US dollar. The sharpest decreases will be seen in non-life subsectors, such as motor and property insurance, where...
Italy Medical Devices
BMI Industry View: The Italian medical device market ranks fourth in Western Europe (WE) but per capita expenditure is low by WE standards. The public sector, which accounts for around 70% of the market, is notorious for the amount of red tape and payment delays. This has affected the sustainability of small medical device companies. However, the adoption of the latest European Directive on delayed payments (Decree 192/2012) resulted in a reduction in the level of debt during 2013 and 2014. As the public sector is struggling to cope with rising costs, th e government has implemented a number of laws in recent years that will continue to...
BMI View: The outlook for Italy's metals sector is improving but still remains far from encouraging. This is thanks to a combination of cheap Chinese imports, low domestic demand, and few project expansions, meaning that growth in consumption and production will be sluggish over the period to 2018. However, we expect Italy to retain its position as the EU's second largest steelmaking country over this time period, with a 16% share of production and the status of a ne...
Oil & Gas
Italy Oil & Gas
BMI View: We maintain a subdued outlook for Italy's oil and gas industry due to projected gradual decline in country's oil and gas reserves as well as rapid downsizing of its refining sector. While the increased investor interest in the country's prospective Adriatic and gradually imporving regulatory environment are positive signs, we believe these improvements will take some years to garner more substantial industry changes.
The permanent closure of Versalis' cracker in Porto Marghera has reduced Italian ethylene production capacity to 1.05mn tonnes per annum (tpa), but domestic producers can now be confident of greater market stability as they drive towards adding value and diversifying production, states BMI's latest Italy Petrochemicals Report.
The cracker was brought offline in February 2014 due to a market downturn, but permanent closure was announced in September 2014 due to the uncompetitive cost of naphtha feedstock, the absence of downstream integration and the recent closure of the upstream refinery. As a result, Italy's cracker capacity is now at half the level it was in 2008.
The major positive factor for Italy's petrochemicals sector is our expectation that it will become a significant producer of biochemicals, which will add value and diversity to production....
Pharmaceuticals & Healthcare
Italy Pharmaceuticals & Healthcare
BMI View: SN pharmaceutical expenditure will decline in 2014 - creating revenue pressures for drugmakers and pharmacies in Italy and increasing out-of-pocket costs for the population. The government aimed to slash public healthcare costs by EUR900mn (USD1.2bn) in 2012 and EUR1.8bn (USD2.4bn) in 2013 and aims to continue to contain healthcare spending by EUR2.0bn (USD2.7bn) in 2014 and EUR2.1bn (USD2.8bn) in 2015.
Headline Expenditure Projections
Pharmaceuticals: EUR20.91bn (USD27.60bn) in 2013 to EUR19.94bn (USD26.71bn) in 2014; -4.7% in local currency terms and -3.2% in US dollar terms.
Healthcare: EUR144.30bn (USD190.48bn) in 2013 to EUR145.11bn (USD194.45bn) in 2014; +0.6% growth in local currency terms and 2.1% in US dollar...
BMI View: Italy is trying hard to appeal to international investors, with the government reorganising its holdings in gas and power grid networks. The first results are promising with an imminent EUR2.1bn deal by China's State Grid International Development (SGDL) to buy a 35% stake in Italy's power grid. But the country is still suffering in the face of economic challenges and the austerity measures proposed to turn the economy around are unpopular. As such, it is of little surprise that E.ON has officially announced the will to sell its Italian operations with Gazprom, Edison and Erg reportedly potential buyers. In December 2014 Russia officially scrapped the South Stream gas pipeline, a project that could have helped transform Italy into a regional gas hub.
In addition, the sluggish economic...
BMI View: We forecast non-hydropower renewable generation in Italy to grow by 3.1% in 2015, which is significantly lower than the five-year historical average. We have also maintained our long-term forecasts for the Italian renewable energy sector this quarter.
We forecast non-hydropower renewable generation in Italy to grow by 3.1% in 2015, which is significantly lower than the five-year historical average. We attribute this slowdown to the government's decision to stop granting feed-in tariffs (FiTs) for new solar installations starting July 2013, and the limited availability of FiTs available for wind energy. We have also maintained our long-term forecasts for the Italian renewable energy sector this quarter.
BMI View : The mobile market has been impacted by sustained economic weakness that has hit the consumer spending with a delay. BMI believes that this will result in negative subscriber growth in 2014 and 2015, however as the economy will start to recover, the mobile sector too will rebound. In the wireline sector, consolidation is the key and BMI also believes that the competition fibre-optic broadband will increase as operators are investing heavily into new network.
BMI believes there were 89.282mn retail mobile subscribers in the country at the end of Q214, down 3.7% y-o-y. The market's growth momentum has been lost as the penetration rate has declined to 146.2% in Q214 from 152% in Q213. Uptake of 3G subscriptions remains robust even in a difficult...
Italy has a highly developed and established tourism sector with popular destinations spread across the whole central Mediterranean country. EU and Schengen membership, as well as an excellent transport infrastructure system encourages travel to, from and within the country. Positive economic developments across key tourism source markets will lead to an increase in inbound travel over the remainder of the forecast period, boosting many other market indicators. Gradually falling unemployment will contribute to growth in outbound travel over the same period, which will also have positive knock-on effects for tourism-related receipts.
Hotels and other investors are drawn to Italy because membership of the EU implies a substantial degree of market transparency and relatively strong economic and political institutions. The value of hotels and accommodation is correspondingly high, though not as great as in some countries with stronger presence of...
BMI View: We have extended our forecasts this quarter to cover new indicators, including extraction by source (lake, river, reservoir, desalination, ground water, spring water, and non-mains consumption). Overall we maintain our outlook on the Italian water sector, emphasising the need for further consolidation, improved management and additional investment. However, given the economic slowdown and continued government financing issues, we do not anticipate much in the way of improvement over our forecast period.
The water sector represents a significant potential growth area in Italy, as the government is keen to attract international investors. However, as with the construction...