Italy is only EU Zone State To Enter Recession in 2018!

[50 shades of black + 254]

Italy’s recession at the end of 2018 was almost unprecedented among the euro area’s major members and provided further evidence of the self-inflicted damage to the economy. While mighty Germany only barely avoided the same fate, its weakness was largely due to one-time effects in the car industry. Italy’s two straight quarterly contractions highlight deeper issues; they also mean it’s the region’s only major economy to slip into recession alone. That amounts to a dubious distinction, as shown in the chart below.Italy isn’t just economically isolated. Politically, the country has come under fire from other euro nations for its budget and tensions have been especially pronounced with neighboring France.

 

https://www.bloomberg.com/news/articles/2019-02-22/italy-suffers-recession-alone-in-economic-political-isolation?utm_medium=social&cmpid=socialflow-twitter-business&utm_content=business&utm_source=twitter&utm_campaign=socialflow-organic

 

[Pavel + 384]

That kleptocracy thing kicks an economy directly in the black hole every time. Look at Russia. Look at Italy...And of, course, "new course with new government"...

[damirUSBiH + 327]

Someone said Russia.... 

"Italy-Russia links highlight threat to EU democracy"

https://euobserver.com/opinion/144255

 

[pinto + 293]

Italy is the iceberg of all the problems in the EU. Just watch what's happening in the EU? Italy and Greece bankrupt, Spain not far off, ECB can not print anymore euros; Germany (maybe) sliding to recession. Riots and EU flags burning in French cities ...Pink future, no way.

[rainman + 263]

I agree. Ice age is coming to the EU. You see that with Orban in Hungary. You see that with Poland. You see that with Lega in Italy. And most important, you see that with the amount of incompetent characters in Brussels....

[Illurion + 894]

I am actually quite hopeful for Italy...

Italy took in too many migrants while being bankrupted and drained of money by Germany, France, and the EU in general....

Finally,  Italy has had enough and said NO......  They stopped taking in Migrants and are sending back some they received... 

They also said NO to the European Union financial polices,  and are "striking out on their own" to find a way back to solvency.....

Italy is the largest of the EU countries to do this so far......   (other than Brexit)

In all,  it is just another nail in the EU's coffin...........

[shadowkin + 584]

Clickbait headline with a kernel of the truth in the post. Germany had zero growth in 2018 barely avoiding the technical description of a recession. The second half of 2018 was weaker than the first despite auto sales rising in the second half so it's doubtful you can attribute it to one time auto effects in the auto industry. 

Btw it's anything but one time. Germany's auto industry is coming under pressure from EVs primarily from Tesla so far. German execs have admitted this. This is only going to increase with the addition of players such as Rivian and Chinese competitors as well as rideshare services like Uber, Lyft.

[Marina Schwarz + 1,576]

Or maybe not the only but the first?

[ronwagn + 6,290]

14 hours ago, damirUSBiH said:

Someone said Russia.... 

"Italy-Russia links highlight threat to EU democracy"

https://euobserver.com/opinion/144255

 

Russia's economy is about the size of Spain's, the only things that keep it relevant are its continuous manipulation of other countries and its nuclear and conventional military capabilities. 

https://www.investopedia.com/insights/worlds-top-economies/

Edited February 26, 2019 by ronwagn
added reference

[ronwagn + 6,290]

8 hours ago, shadowkin said:

Clickbait headline with a kernel of the truth in the post. Germany had zero growth in 2018 barely avoiding the technical description of a recession. The second half of 2018 was weaker than the first despite auto sales rising in the second half so it's doubtful you can attribute it to one time auto effects in the auto industry. 

Btw it's anything but one time. Germany's auto industry is coming under pressure from EVs primarily from Tesla so far. German execs have admitted this. This is only going to increase with the addition of players such as Rivian and Chinese competitors as well as rideshare services like Uber, Lyft.

If South Korea could learn to make cars that are high quality I am sure that China can eventually do the same. Especially when they have the largest market of all right in China. The same is true of India. They also have the advantage of guiding the fuel types that are used. This will simultaneously provide a great benefit with cleaner air which both nations need desperately. 

[Jan van Eck + 7,558]

On 2/25/2019 at 10:08 AM, 50 shades of black said:

Italy’s recession at the end of 2018 was almost unprecedented among the euro area’s major members ........the chart below.Italy isn’t just economically isolated. Politically, the country has come under fire from other euro nations for its budget and tensions have been especially pronounced with neighboring France.

 

Italy is characterized by a handful of giant corporations - FIAT,  Total, ENI, - and thousands of smallish, artisanal-type enterprises, typically family owned; and then a ton of much smaller businesses, including bakeries and so forth.  Now,  smallish enterprises are typically not good utilizers of capital.  They tend to substitute labor for capital.  SO as labor costs go up, in euro terms, it becomes difficult or impossible to raise their prices to adjust.  Those smallish firms, that make belts and ties and women's fashions and scarves and all the rest,  they tend to end up constricting output and becoming effectively insolvent.  that constrains the State as, no profits, no tax revenues.  

Historically, Italy has responded to their goods being priced out of European (and American, and Canadian) markets by devaluing its currency, the Lira.   Successive small devaluations became the accepted practice for Italy, each such devaluation being perhaps a percent or three percent.  Italy could function nicely with successive incremental devaluations.  

Now along comes the EU and their Euro and that scheme goes down the drain.  There are no devaluations because there is a common currency.  As the euro rises against the US Dollar, Italy's exports to the US Market get under pressure.  Can the Italian producers absorb the currency exchange and take less?  Nope.  they are not able to do that, because Italy does not have production efficiencies.  Italy has labor inputs instead of machinery and capital inputs  (except Fiat).  That said, top-end stuff simply has the price raised:  Ferrari and Lamborghini, for examples.  But the handbag manufacturer or the scarf provisioner, not so much. 

What will happen in Italy?  Unfortunately, it starts to look more and more like Greece.  A default failure in Italy, due to currency restrictions imposed by the Euro, would wreck the place.  Will the big German banks come to the rescue with ultra-cheap loans?  Will debts be absolved and forgiven?  Will Italy receive extra transfer payments from Brussels (or anywhere else)?  Nope, nope, nope.  And therein lies the problem for both Italy and the EU. 

[NickW + 2,714]

The only two economies that benefitted from the Euro were Germany and the Netherlands. In varying degrees the Euro screwed every other economy by holding them in a straight jacket as Jan describes because they couldn't devalue.