Country outlook Italy

Transcription

1 Country outlook Italy

2 Form of Government: Parliamentary republic Capital: Rome Official language: Italian Population: 61 million inhabitants (2017) Currency: Euro (EUR) Exchange rate: 1 EUR = 1.17 USD (30/06/2018) GDP: $1,9379 trillion (1.9% of world GDP) GDP per capita: $31,984 ($38,140 purchasing power parity) Ease of doing business: 46 th in the world out of 190 according to the World Bank (Doing Business) Religion: Catholic: 88% Time zone: Same time as mainland Spain Country outlook is a publication by CaixaBank Research that contains information and opinions from sources considered to be reliable. This document is for informative purposes only and CaixaBank is not liable in any way for any use made thereof. The opinions and estimates are those of the CaixaBank Research and are liable to change without prior notice.

3 Economic forecast GDP. Year-on-year change (%) Despite the favourable external environment, (steady rate of growth in the Eurozone and low interest rates), the recovery of the Italian economy will remain modest. Accordingly, growth has already decelerated in 2018, a trend we expect will continue until 2019, due to the context of political uncertainty, a high level of public debt, vulnerabilities in the banking sector and structural rigidities CPI. Year-on-year change (%) Inflation in 2018 and 2019 will remain at moderate levels, and below those recorded in other countries in the euro area, due to the lack of dynamism in economic activity Economic policy Benchmark interest rate (%) and exchange rate (EUR/USD) Benchmark interest rate (left scale) Exchange rate (right scale) Fiscal balance (% GDP) Current account (% GDP) Although the M5S-Lega coalition government has excluded the most controversial measures from its programme (creation of a mechanism to leave the euro and condonation of debt in the hands of the ECB), the intentions and commitment of the government to the EU continue to generate uncertainty. Public debt (% GDP) In particular, the proposal to implement a significant tax reduction and to increase spending considerably through the introduction of universal income puts into question the sustainability of public finances. However, we expect the government to soften on its campaign promises given that the cost of the proposed tax plan is very high (around 100 billion euros per year, or some 6% of GDP), aside from being incompatible with EU fiscal rules. In addition, it should be mentioned that such policy would probably lead to a significant tightening of financial conditions for Italy. Financial conditions Private credit (% GDP) 95 Gross external debt (% GDP) Although significant progress was made in the restructuring of the Italian banking sector in 2017 (preventive recapitalisation of Monte dei Paschi di Siena and liquidation of the regional banks Veneto and Popolare di Vicenza), the structural weaknesses of the sector have not been corrected and not all entities are in a strong position to support the growth of the economy. Specifically, although the quality of assets has improved considerably, in part due to reforms that facilitate the resolution of insolvency proceedings and the sale of non-performing loan portfolios, the stock of nonperforming loans (a legacy of the economic crisis and the excessively lax lending policy) remains high and constitutes a significant burden for investment and growth. Moreover, many banks, particularly small and medium-sized ones, still face profitability issues. Source: CaixaBank Research, based on data from Thomson Reuters Datastream, IMF, Bloomberg and Oxford Economics. 101

4 Rating BBB- Baa2 BBB Fitch downgraded Italy s rating from BBB+ to BBB in 2017 due to the weak economic growth and recurring budgetary deviations. Moody s recently indicated that it would downgrade its rating if the government continued with its fiscal plans. Rating outlooks are stable for Fitch and S&P. A country has investment grade if its rating is BBB- or higher (S&P and Fitch) or Baa3 or higher (Moody s). Political situation The general election held last 4 March resulted in a fragmented parliament in which no party managed to secure an absolute majority. After a long period of negotiations, the two parties with the most votes, M5S and Lega, both with Eurosceptic and populist tendencies, agreed to form a coalition government. However, we believe that this is a fragile government at the outset, so we find it unlikely that it will finish the term. Specifically, both parties have little experience in front-line politics and a weak senate majority. Moreover, the EU and President Matarella have the power to dilute the most controversial policies, and market pressures will continue to condition the government s actions. Added to all this are the incentives for both parties to break the coalition for a repeat election if they see their electoral support increase in the polls. Long-term outlook GDP growth (%) 0.9 Population. Milions of inhabitants Italy implemented a broad program of reforms in recent years (of institutions, the public administration, taxes, the job market and the banking sector). Nevertheless, these reforms have been partial and insufficient to correct the structural rigidities or raise the economy s low productivity level. Inefficiencies in the public administration and judicial processes, and rigidities in the markets of products and services are particularly important. Italy still needs an ambitious programme of reforms to improve its medium- and long-term growth potential, especially given the high public debt level, the lack of demographic vigour and the ageing of the population. However, the new government has not included in its programme any detailed strategy to boost economic growth and reduce the sources of vulnerability of the economy. Moreover, one of the items on the government s agenda is the repeal of parts of the 2011 pension reform, one of the major reforms of recent years. Risks SHORT-TERM LONG-TERM Populist leaning of the economic policy - + Bank restructuring process - + Public finances - + Less favourable external environment - + Failure to push for modernisation - + Ageing population - + Uncertainty regarding the European integration process - + Business environment STRENGTHS Market size (in European terms). Infrastructure. Business innovation and sophistication. WEAKNESSES Institutions (excessive bureaucracy and inefficient judicial system). Non-performing loans and recapitalisation needs of the banks. Low productivity. Rigidities in the labour market. Main sectors Services: tourism. Industry: textiles, machinery, motor vehicles, luxury products and agricultural and food products. CIBI CaixaBank Index for Business Internationalisation POSITION IN COUNTRY RANKING 6 67 PILLARS 5. Stability Accessibility Ease of operating SUBPILLARS Top Similar tastes to Spain Credit Investment relations with Spain Bottom Macroeconomic stability Ease of operating a business Institutional stability Financial environment Commercial attractiveness Western Europe Italy (Min. 0 - Max. 100) Note: The CIBI Index measures the ease of internationalisation for Spanish companies in each country. The analysis is carried out for a total of 67 countries, resulting in a ranking that reflects their attractiveness to Spanish companies. In the global ranking, the lower the number, the easier the internationalisation. In the pillars, on the other hand, the higher the number, the easier the internationalisation. See the document CIBI. CaixaBank Index for Business Internationalisation, available at Source: CaixaBank Research, based on data from Thomson Reuters Datastream, IMF, Bloomberg and Oxford Economics.

5 Taxation Corporate tax (Imposta sul Reddito delle Società IRES) is 27.5%. There is also a regional tax called IRAP (Imposta Regionale sulle Attività Produttive) with a rate of 3.9% except for banks and financial companies, where it is 4.65%, and 5.90% for insurance firms. Personal Income Tax (Imposta sul Reddito delle Persone Fisiche IRPEF) is progressive and varies from 23% for incomes between EUR 0 and 15,000 up to 43% for incomes above EUR 75,000. General VAT (Imposta sul Valore Aggiunto) is 22%, with a low VAT rate of 4% for some basic products such as food products, medical supplies, books and magazines, and another low rate of 10% for other food products, live animals, the restaurant industry, transport and residential properties, among others. There are other taxes on tobacco, alcohol, oil, etc. established at national or local level. Investment In Italy, foreign direct investment for 2015 was billion dollars. In terms of foreign direct investment, Italy has always lagged behind its European neighbours. The privatisation programme implemented by the country in the energy and telecommunications markets has made these sectors a good investment opportunity for foreign firms. Moreover, there are positive growth prospects in sectors such as the construction of tourist complexes, banking and insurance and renewable energy, which could also attract foreign capital. Establishment LOCAL COMPANY The most common forms for establishing companies in Italy are: limited liability companies (Società a Reponsabilità Limitata S.r.l.) and joint stock companies (Società per Azioni S.p.A.). In the case of limited liability companies, the minimum capital is EUR 10,000. A new form has recently been created, called a simplified limited liability company (Società a Responsabilità Limitata Semplificata S.r.l.s), where the minimum capital is 1 euro and there is only one person. The minimum capital required for joint stock companies is 50,000 euros. This form of representation is generally used by bigger companies with a large number shareholders. In addition to these forms, which are the most common, there are also other forms such as partnerships limited by shares (Società in accomandita per Azioni S.a.p.A.); the fundamental difference with the other company is that there are two types of partners: collective partners (accomandatari), who have no limits of liability, and sleeping partners (accomandanti), who have limited liability and are excluded from administrative functions. BRANCH The creation of branches is very common in Italy. A representative is normally appointed in the country, who, for legal purposes, is ultimately liable for the company s obligations in the country. It is a legal body that depends on the parent company. The organisation REPRESENTATIVE OFFICE This concept does not exist in Italy as such; the closest thing can be called a local office. This has no legal personality and is mainly used to provide local presence for products and services of companies via promotional or advertising means, or to carry out responsible for registering entities as branches is called the Registro delle Imprese. It is important to provide the details of the people resident in Italy who are responsible and represent the company. fieldwork or research for non-commercial purposes. They must be registered in the REA (Repertorio Economico Amministrativo) of the corresponding Chamber of Commerce. Alliances strategic FREE TRADE ZONE There are two free trade zones in Italy: the most important one is in Trieste, and the other in Venice. There is also a customs office in the free trade zone of Gioia Tauro (Naples). JOINT VENTURE There are different ways of operating as a joint venture in Italy. They are not specifically regulated, but, in general, can be associated companies creating a new company whose limit of liability depends on the capital contributed by each partner; others are created as consortia for specific purposes; while a third type, which are contractual, have a set duration and are governed under the terms of a contract that all partners enter into. 103

6 Customs conditions FREE TRADE AGREEMENTS The 28 EU Member States form part of the same territory for customs purposes. The very definition of a customs union validates the inexistence of tariff barriers between Member States. A common tariff is applied for imported products; once effective, goods can circulate freely throughout all countries in the EU. FREE TRADE ZONE Goods are exempt from VAT and import duties and tariffs. In the free trade zones of the EU, the goods can be processed under customs control prior to them entering EU territory or under the regime of inward processing prior to re-exportation. When goods leave a free trade zone, their final destination is not restricted. If the goods are re-exported, they will not pay any customs duties or internal indirect taxes. If, on the other hand, the goods are released for free circulation, the corresponding customs duties and taxes for importation from the destination territory will have to be paid. In Italy, specifically, customs duties are postponed 180 days as from the time the goods leave the free trade zone to enter another European country. Moreover, the law governing free trade zones allows companies of any nationality to hire labour of the same nationality, according to the laws governing the labour market of the country of origin. GENERALISED SYSTEM OF PREFERENCES (GSP) Italy is one of the countries that grants tariff preferences by applying zero duty or reduced tariffs to beneficiary countries (less developed countries). Negotiations and protocol BUSINESS CULTURE The importance of punctuality varies according to the region in question; in the north it is very important while, in the south it is not as imperative. When it comes to negotiations, Italians place great value on appearance; they take great care over the way they dress and behave. This value is usually transferred to the product, sometimes giving more value to the design than the price. Meetings are usually carried out relatively informally and accompanied by an initial relaxed chat on any topic of the country, such as culture, history, cuisine, etc. The expressive character of Italians needs to be taken into account. They do not take decisions quickly, but instead like to study proposals. Top fairs Biennale. IRPC. Salone Nautico Internazionale. BIT. Pitti Bimbo. Motorbike Expo. Salone Internazionale del Mobile. Websites of interest National Italian Agency to Attract Investment: Chamber of Commerce: Ministry of the Economy and Finance: Information for investing in Italy: Central Bank of Italy: Italian Confederation for Small and Medium-Sized Enterprises: Ministry of Foreign Affairs and International Cooperation: Payment and charging methods MEANS OF COLLECTION As the country belongs to the EU, the most widely used means of collection is international bank transfer, thanks to the facilities that exist between Member State banks. The financing of imports tends to be seen as a competitive advantage when choosing a supplier. Italian clients may require payment against invoice within 60 and 120 days. MEANS OF PAYMENT Bank transfers are widely used (90% of payments), in particular SWIFT transfers, as this considerably reduces the time required for processing. Bank transfers are a Companies that export to Italy can now make electronic payments via SEPA; previously the Italian payment system known as RIBA (ricevuta bancaria or bank receipt) was used, based on the principle of presumed payment, even though this does not offer any guarantee. It is advisable to hedge against risk via bank guarantee or documentary credit. cheap, safe way to pay once the parties involved have established mutual trust. Another option is documentary credit, especially when the customer is not known. EXCHANGE RATE INSURANCE This is not necessary when working with Italy as the same currency is used. CaixaBank in the country The main aim of the Italian office is to offer consulting to European companies on the products and services CaixaBank makes available to them to cover their financial needs in Spain. Moreover, it accompanies and offers the necessary consulting to Spanish firms to develop their business in Europe.

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8 Milan representative office Via Borromei 1/A Milano Italy Contact details Director: Claudina Farre Tel. (+39)