Companies not investing much in Italian economy

Positive news continues to trickle in for Italy’s economy, but investors and economists say that it is still too early to say the economy has finally emerged from its long economic malaise.

The most encouraging figures are related to growth in Italy’s gross domestic product. The latest growth figures show Italy’s economy grew 0.3 percent in the first quarter of the year — that would be a low growth figure for most countries but it cancels out a 0.3 percent contraction in the last three months of last year, and it represents the first time the economy showed positive economic growth for a full quarter since the third quarter of 2013.
Additionally, the International Monetary Fund, which is usually pessimistic about Italian growth prospects, upped its forecast for full-year growth to 0.7 percent, compared to 0.5 percent previously. If that indeed happens it will be the first time Italy recorded positive economic growth for a full year since 2011.
There are other positive signs as well: business confidence reached a seven-year high in March, the latest figures available, and consumer spending is inching higher.
But one thing is missing, according to observers, new investments.
“The fact that businesses are slow to hire new workers and invest in new infrastructure or research is what makes me pause,” Javier Noriega, chief economist with investment bankers Hildebrandt and Ferrar, told Xinhua. “Businesses know their corner of the market better than any analyst and if they are cautious, it makes me cautious.”
Giandomenico Piluso, an economics and statistics expert with Italy’s University of Siena, agreed.
“This is a ‘dirty’ recovery in the sense that it’s not always possible understand the impacts of what happens,” Piluso said in an interview. “My best guess is that what we have seen lately is positive news. But I would still want to see more.”
At least one major factor help spark growth in Italy is an external factor: the weak euro. As the currency loses value against the U.S. dollar and other world currencies it makes it easier for consumers in those countries to buy Italian goods and cheaper for them to plan a vacation in Italy. It also makes it cheaper for the Italian government to pay its debt, a major factor in Italy where the national debt is equal to more than 130 percent of the country’s gross domestic product.
But Piluso said an equally large factor is within Italy’s control: Prime Minister Renzi’s reform agenda.
Piluso said that various reforms — Renzi’s plans for political reforms, for example, educational changes, reforms to the public administration, and so on — will help spark economic growth on a variety of time frames, some of them year away. But the Jobs Act, which will give companies more flexibility in hiring and firing workers, will pay almost immediate dividends.