Special Report: Global Financial Crisis

    by Xinhua writer Wang Yunjia

    BEIJING, March 11 (Xinhua) -- Italy, which has long suffered from low economic growth due to lingering traditional obstacles, has plunged into an economic downturn since the contagious financial crisis broke out last year.

    Analysts say the current downturn may last for a considerable period in the country as it battles against traditional old obstacles that impede its development while trying to pull through the economic crisis.     

    TRADITIONAL LIMITATIONS ON ECONOMY

    Italy enjoyed vigorous growth in the mid 1990s and became one of the first 11 eurozone countries. However, from the late 1990s it plunged into a downturn, when most years its economic growth was behind that of Europe's average level.

    In 2005, Italy had the worst economic data in the eurozone countries: zero growth in GDP, and the deficit jumped to 4.1 percent of GDP. In 2006, thanks to the Torino Olympic Winter Games, it saw a rise of 1.9 percent in GDP, while Britain and Germany both increased 2.7 percent. In 2007, Italy's GDP rose 1.5 percent, while the European Union enjoyed a 2.9 percent increase.

    Italy has faced a series of problems that have slowed development.

    First, instead of having a large number of world-class multinational corporations like other economies of equivalent size, Italy's main economic strength was its large base of small- and medium-size companies, which usually suffered from high labor costs. As the developing countries took advantage of the low cost of raw materials and labor, their products, although sometimes blamed for poor quality, adversely affected the local companies.

    In order to cut costs and gain bigger profits, the Italian small- and medium-size companies began to invest in East Europe and Asia, moving their manufacturing plants there, which led to a decrease in jobs, an increase in unemployment and a greater pressure on public spending in the country.

    Second, Italy underwent a considerable economic gap between its northern and the southern areas. The annual average income of people in the south was only 75 percent of that in the north in 2007. In order to boost economic development, the Italian government kept investing in the south, which, to their disappointment, had little effect.

    Third, Italy was not good in the high-tech fields like the bio, electronic, and information industries, which made it more difficult to develop its high-value added industries and less competitive in the knowledge economy.

    Furthermore, analysts say, the country's huge public debt in Europe and corruption in government also contributed to the decline of its economy.     

　　SEVERE CHALLENGES AHEAD

    As the financial crisis swept the world, Italy could not escape. It entered a recession -- defined as two quarters of negative growth in a row -- in the third quarter of last year.

    Italy suffered a 1 percent GDP contraction in 2008, which was worse than the 0.6 percent contraction the government had predicted, and the worst since 1975, the Italian Statistics Agency(Istat) said last week.

    The contraction was largely due to a 3.7 percent fall in exports, a three percent fall in investment and a 0.5 percent fall in consumption.

    The record one-percent GDP drop in 2008 has boosted the country's budget deficit and lowered its primary surplus, Istat said.

    The country's deficit for 2008 is expected to rise to 2.7 percent of GDP, from 2.6 percent forecast by the government. Meanwhile, its primary surplus declined to 2.5 percent of GDP in 2008, from 3.5 percent in 2007, Istat said.

    Amid the economic crisis, Italians have had to change their lifestyles. According to a report "Italy 2009" by think tank Eurispes, today 78 percent of Italians have changed their lifestyles, cutting expenditure on such things as gifts, restaurants, entertainment and holidays.

    Some people thought that for Italy, the crisis may not be as destructive as it would be for other nations.

    "You'll see that we are raising our position in this crisis, as other nations are going backwards faster," Italian Economy Minister Giulio Tremonti said in January.

    However, as the "traditional" obstacles still exist, which could bring a worse impact to the country with the current international financial crisis, the outlook seems more bleak and obscure to some observers.

    On Tuesday, the Organization for Economic Cooperation and Development (OECD) said the situation in Italy this year and the next would be "much worse" than it had previously forecasted, and the economic data this year may be the steepest among its 30 members.

    Italy would not come out of its current recession until "sometime" in 2010, the OECD said.

    The International Monetary Fund also agreed that Italy faced a difficult time. In its country report released earlier this year, the IMF said the possibility of Italy's economic recession stretching into 2010 "cannot be ruled out."

    "In line with the rest of the euro area, Italy is being severely affected by the worsening economic environment", the IMF said.

    "The economic recession is deepening, and, while a gradual recovery is expected in 2010, the possibility of a prolonged downturn cannot be ruled out," it said.

    Bank of Italy's deputy director General Ignazio Visco said on Wednesday that Italy's GDP in 2009 may fall by as much as 2.6 percent, a figure much worse than that of 1975.

    The Italian government has taken several measures to tackle the economic crisis.

    The government's economic committee CIPE on Friday approved a program of public projects to help the country weather the global downturn.

    Aimed at boosting the economy and creating jobs, the plan involves some 17.8 billion euros (23.1 billion dollars), more than the originally expected 16.6 billion (21.6 billion dollars), which would be mainly invested in infrastructures.

    The government has also helped families pay their mortgages and buy durable goods.

    Although the Italian banks so far do not seem to have been directly hit by the credit crunch, which began in September 2007 and then worsened in the second half of 2008, the government is debating whether to nationalize the country's banks in case of emergency.

    In the meantime, facing the most difficult financial crisis in the new century that has affected nearly every part of the world, Italy still has a long way to find solutions to tackle its traditional problems.