Our Opinion: 2015
Italy’s brighter future
While Greece’s boom and bust crisis is ‘acute’, Italy’s could be described as simply ‘chronic.’ It has barely grown since joining the Euro and, as the Eurozone’s third largest economy, that is a bigger, fundamental problem than the fate of the smaller, more peripheral, Greek economy.
The Economist reported some good news this month saying that Italy “appears to be emerging from a recession that has lasted for more than three years.” This is due to a combination of “falling oil prices, the European Central Bank’s quantitative easing and a weaker Euro,” which are “all doing their bit.” Prime Minister Matteo Renzi has penciled in growth this year of 0.7% although some of his advisers think this will prove an underestimate. The government claims that this shows that Renzi’s reforms over the last 14 months are having an effect. Encouraged by this, they are considering easing up on austerity and launching a new €1.8m fiscal stimulus.
Whilst Italy will continue to cut public spending next year, this will still bring in €6bn short of the original three year plan, meaning possible conflict with the EU and International Monetary Fund which wants it to rein in its high levels of public debt.
John Follain on Bloomberg.com reported that the corporate sector is also showing signs of growing confidence, demonstrated by a “boom in mergers and acquisitons in Italy.” Encouragingly, this includes interest from foreign buyers who see value emerging in the economy. ‘Deals targeting Italy surged more than 400% year-on-year to a total value of $19.3bn. This is “more than any other country in the Euro region and compares with a 14% increase across Europe as a whole.
Richard Barley at the Wall Street Journal concluded that all this might be a sign that Italy is about to “show that it can at east generate cyclical growth.” That is important for the entire Euro-zone. “If it doesn’t, expect more questions to be asked about what the single currency does for its members.”
Italy is one of several European equity markets which look attractive, and many of the Discretionary Fund Managers that we work with are significantly increasing exposure to Europe, taking advantage of low asset values.