Our comprehensive assessment of Italy's operating environment and the outlook for its leading sectors are formed by bringing together a wealth of data on global markets that affect Italy, as well as the latest industry developments that could impact Italy's industries. This unique integrated approach has given us an impeccable track-record for predicting important shifts in the markets, ensuring you’re aware of the latest market opportunities and risks in Italy before your competitors.
Italy Country Risk
Italy will return to modest growth in 2014 and 2015, although a weak labour market and ongoing contraction in credit growth will continue to impede a more robust recovery.
We view positively the urgent structural reform agenda of new Prime Minister Matteo Renzi. However, we remain sceptical that he will be able to avoid the chronic instability, political infighting and rigid vested interests that that have in the past impeded reform efforts.
Lack of significant structural reform in previous years seriously jeopardises Italy's long-term growth trajectory, and raises the risks that the public sector debt burden will become unsustainable.
Even if reforms aimed at addressing Italy's decline in productivity growth and external competitiveness are passed, an ageing demographic profile will make debt consolidation efforts...
Italy Industry Coverage (18)
BMI View: Our outlook for the Italian agribusiness sector has turned more bearish, as dry conditions in Europe, high operating costs and bleak economic prospects have taken a toll on the grains, dairy and livestock sectors. Our long-held view has favoured the grains segment over rice, and we expect conditions to be particularly favourable for wheat and corn over the forecast period to 201 8 . We expect poultry and cheese to outperform, mainly bolstered by the expected economic recovery, change s in consumption habits and opportunities for expansion into export markets.
Corn production growth to 2017/18: 27.5% to 10.2mn tonnes. Production is expected to rise on low...
Vehicle sales in Italy declined 7.6% in 2013 to 1.4mn units on the back of a weak macro environment. This came from a 7.0% drop in passenger car sales and 13.3% fall in the commercial vehicle (CV) segment. In 2014, we expect to see a resurgence across the market due to low base effects and pent-up demand and accordingly forecast 3.3% growth in vehicle sales over the year.
BMI forecasts 3% growth in passenger car sales in 2014 as improvements in consumer sentiment filter through to the autos sector. Moreover, pent-up demand in the market from sustained declines has buoyed sales over the year-to-date, and low base effects from weak sales in 2013 have provided a further boost.
BMI maintains our bearish view on the country's manufacturing and construction sectors, although some relief to the CV segment is likely to come on the back of pent-up demand from several years of...
Defence & Security
Italy Defence & Security
Italy is currently in the process of performing a wide-ranging review of its defence requirements. This review is being conducted as a result of the current government's desire to reduce Italian public spending and because of changing Italian strategic priorities. Much speculation is focusing on whether Rome will reduce its order for Lockheed Martin F-35 Lighting-II multi-role combat aircraft. The country had originally been earmarked to receive 90 of the jets, but this order may now be reduced as part and parcel of a cost-cutting measure.
Italy may benefit from receiving additional important work vis-a-vis the Lockheed Martin F-35 Lightning-II multi-role combat aircraft. The aircraft's manufacturer is looking at Italy as a possible location for a site where the maintenance, repair and overhaul of F-35s flown by European air forces and navies can be performed. The favourite site to this end is Cameri Air Base in...
Food & Drink
Italy Food & Drink
BMI View: Â W e have revised downwards our forecast real GDP growth for Italy to - 0.2% and 0.6% in 2014 and 2015 respectively, from previous forecasts for Â 0.4% and 0.7% growth . Â According to our forecasts, Italy's economic output will remain well below pre -crisis levels over the medium-to- long term. We forecast that annual real GDP growth will not break 1% over the next 10 years , and both public and private sector consumption ...
Italy Freight Transport
Freight Sector Recovery As Recession Bottoms Out
Although the recession in Italy shows clear signs of having bottomed out, the recovery remains fragile and at risk from a renewed bout of political instability. We estimate real GDP to contract by 1.5% in 2013, before returning to positive growth of just 0.3% and 0.7% in 2014 and 2015 respectively. The Italian freight sector appears to be making a steady recovery too, showing positive signs over the medium term, buffered by new developments in European trade links.
Headline Industry Data
Port of Genoa cargo volume set to rise by 0.3% to 54.534mn tonnes in 2013 (down fractionally from a 0.4% contraction in 2012).
Air freight volumes are expected to see 1.0% growth in 2013 and a further 2.0% expansion in 2014.
After a significant period of decline, Italy's construction sector is expe cted to return to growth in 2016 , albe it at a subdued rate of just 0.12 % . Government infrastructure investment has been limited by Italy's difficult economic environment, including massive public debt, high unemployment rates and falling property prices however a series of recently announced transport and utilities projects indicate the market is turning.
Key Trends and Developments:
Infratrasporti has signed an agreement with the regional Piedmont government to build the Lingotto-Bengasi section 4 of Line 1 of Turin metro; the federal government will provide EUR111.13mn (USD141.44mn) for the project, while Turin city and the company will...
BMI View: A long and difficult period for Italy ' s life insurers came to an end in early 2014. A surge in new business premiums will probably cause us to make a substantial upwards revision to our estimates of business written in the life segment this year. Looking further out, though, we think that it remains reasonable to expect only a single digit rise annual premiums. Prices and/or volumes continue to fall in the fragmented non-life segment. Profits have held up as a result of the discipline, in terms of cost control, of the companies themselves. A deterioration in profitability in the non-life segment at some stage in the forecast period (an outcome to which we ascribe a probability of at least 50%) could result in a new wave of mergers and acquisitions.
This is BMI's first report on the insurance sector of Italy. The...
Italy Medical Devices
Espicom Industry View: The Italian medical device market ranks fourth in Western Europe (WE) but per capita expenditure is low by WE standards. The public sector, which accounts for around 70% of the market, is notorious for the amount of red tape and payment delays. This has affected the sustainability of small medical device companies. However, the adoption of the latest European Directive on delayed payments (Decree 192/2012) resulted in a reduction in the level of debt during 2013. As the public sector is struggling to cope with rising costs, th e government has implemented a number of laws in recent years that will affect public health expenditure , including...
BMI View: The outlook for Italy's metals sector is far from encouraging , as a combination of cheap Chinese imports, low domestic demand and few project expansions mean that growth in consumption and production will be sluggish over the period to 2018 . However, we expect Italy to retain its position as the EU's second largest steelmaking country , with a 16% share of production and the status of a new producer. In 2014, we are forecasting steel production in Italy to reach 27.06mn tonnes (mnt), representing an increase of 1.5% year-on-year (y-o-y). Similarly, we are forecasting steel consumption in Italy to rise by 1.4% y-o-y in 2014 to 22....
Oil & Gas
Italy Oil & Gas
BMI View: We maintain a subdued outlook for Italy's oil and gas industry due to projected gradual decline in country's oil and gas reserves as well as rapid downsizing of its refining sector. While the increased investor interest in the country's prospective Adriatic and gradually imporving regulatory environment are positive signs, we believe these improvements will take some years to garner more substantial industry changes. Â
BMI View: The Italian petrochemicals sector is facing a multitude of problems that will ensure little growth over coming years . It will face increased competition in core markets as it feels growing pressure from non-EU rivals and this could prompt industry consolidation and a move towards greater specialisation rather than a focus on volumes.
Italy has seen a significant loss of petrochemicals capacity in recent years as producers have closed down uncompetitive, loss making units in the midst of a national and European economic crisis. By 2014, leading producer Versalis had 1.62mn tpa of ethylene capacity (down 25% over 2010) and 785,000tpa of polyethylene (PE) capacity (down 44%), and the company is now looking to high value diversified production in bio-based chemicals. The PVC segment no longer exists after plant...
Pharmaceuticals & Healthcare
Italy Pharmaceuticals & Healthcare
BMI View: Â The drop in public pharmaceutical expenditure in Italy in 2013 to a level below that of spending a decade ago does not bode well for prescription drugmakers, patients and pharmacies in the country. The success of the implemented policies may encourage the enforcement of further cost-containment measures targeting the pharmaceutical industry, particularly as the government is focused on slashing public healthcare costs. The government aims to slash public healthcare costs by EUR2bn (USD2.7bn) in 2014 and EUR2.1bn (USD2.8bn) in 2015, continuing from EUR900mn (USD1.2bn) in 2012 and EUR1.8bn (USD2.4bn) in 2013.
Headline Expenditure Projections
Pharmaceuticals: EUR20.91bn (USD27.60bn) in 2013 to EUR19.90bn (USD26.67bn) in 2014;Â -4.8% in local currency terms and -3.4% in US dollar...
BMI View: Â Italy is trying hard to appeal to international investors, with the government reorganising its holdings in gas and power grid networks. The first results are promising with an imminent EUR2.1bn deal by China's State Grid International Development (SGDL) to b u y a 35% stake in Italy's power grid. But the country is still suffering in the face of economic challenges and the austerity measures proposed to turn the economy around are unpopular. As such, it is of little surprise that E.ON has officially announced the will to sell its Italian operations with Gazprom, Edison and Erg rumoured as potential buyers. In addition, the sluggish economic performance is also having an impact on electricity consumption levels - we have lowered our forecasts last quarter. In the short term at least, we forecast that the renewable energy sector and...
BMI View: Â We are forecasting non-hydropower renewable generation in Italy to grow by 4.0% in 2014, which is significantly lower than the five-year historical average. We attribute this slowdown to the government's decision to stop granting feed-in tariffs (FiTs) for new solar installations starting from July 2013 and the limited availability of FiTs available for wind energy. We have also maintained our long-term forecasts for the Italian renewable energy sector this quarter and expect growth to continue to slow over our forecast period. These include a lack of commercial interest in offshore wind energy, the lack of subsidies, uncertain regulatory environment for solar and the country's troubled economic situation.
We are forecasting non-hydropower renewable generation in Italy to grow by 4.0% in 2014, which is significantly lower than the five-year historical...
BMI View : Although we have secured new fixed-line and broadband market data from the regulator - which show acceleration in fixed-line losses, amongst other things - new data was not forthcoming from some of the mobile operators. However, preliminary data from Vodafone suggest a resurgence in subscription additions and we have amended our forecasts accordingly. That said, a softening in the MVNO market and expectations that 3 Italia will absorb rival WIND indicate that there is little organic growth to be obtained in the mobile market. Rather, operators must focus more on premium non-voice services for...
Italy has one of the most mature and extensive tourism sectors in Western Europe owing to its historical attractions, balmy climate and numerous cultural and retail attractions. Moreover, its central location makes it an attractive destination for both Western and Eastern European tourists, as well as non-European visitors. Despite this, its continuing economic uncertainty and the well-established market leaves little room for growth opportunities, particularly in the hotels sector.
Hotels and other investors are drawn to Italy because membership of the EU implies a substantial degree of market transparency and relatively strong economic and political institutions. The value of hotels and accommodation is correspondingly high, though not as great as in some countries where there is a stronger presence of four-star and five-star luxury high-end hotels.
At the same time, an ageing, underfunded infrastructure grid...
BMI View: Â The Italian water sector remains highly fragmented and somewhat imbalanced with incoherent water management systems and inconsistent water charges. This leads to numerous inefficiencies and a lack of clarity , which results in water wastage. It also acts as a deterrent to potential investors and would-be entrants who prefer more stable and transparent investment opportunities.Â In addition, it now faces punitive fines from the EU Commission due to the continued non-compliance with water pollution regulations. This will, in our view, result in additional regulations and requirements of industrial water users.
Over the past few years, the Italian water sector has undergone a significant reorganisation in order to adhere to the rules set out in the European Union Water Directive concerning...