major macro economic indicators
|2019||2020||2021 (e)||2022 (f)|
|GDP growth (%)||0.3||-8.9||6.7||2.3|
|Inflation (yearly average, %)||0.6||-0.1||1.9||5|
|Budget balance (% GDP)||-1.6||-9.6||-9.2||-6.2|
|Current account balance (% GDP)||3.2||3.8||3.3||2|
|Public debt (% GDP)||134.6||155.6||154.2||153.1|
(e): Estimate (f): Forecast
- Resurging manufacturing industry (machinery, pharmaceuticals, etc.)
- Increasing efforts to combat tax evasion and reduce informality
- Bank asset quality has significantly improved
- Comparative advantage in high-end food products , textiles and clothing, furnishing, machinery
- European support creates opportunity for modernization
- Public debt still very high
- High dependency to Russian gas (19,7% of primary energy consumption)
- Prevalence of small, low-productivity companies (more than 90% of firms have 10 employees or less)
- Manufacturing sector vulnerable to the supply chain crisis and inflation (agri-food, chemicals, metals, paper, wood, automotive)
- Strong regional disparities, organized crime still influential in the South
Draghi brings harmony and stability, but Italian politics can always change on a whim
After decades of chronic parliamentary instability, Italian politics is experiencing a rare period of political consensus under the unity government of PM Mario Draghi. A technocrat without party affiliation, Draghi’s background as one of Europe’s most experienced policymakers has restored faith in competent governance, particularly among investors and business leaders. Despite the highly fractured parliament, the government is supported by all parties except the radical far-right Fratelli d’Italia (FdI) and commands strong majorities in both chambers. While previous technocratic administrations (Monti and Renzi) quickly depleted their political capital by having to impose austerity, Brussels has given Draghi the means and the mission to modernize the Italian economy. The ensuing economic growth has created a basis for popular support. However, this popularity will be tested as growth moderates and structural reforms (bureaucratic downsizing, tax reform) kick in. While the recovery has forced populists into retreat, anti-establishment sentiment can be easily reignited. In particular, snap elections could be triggered if the right-wing block were to unify under any of its leading personalities: Georgia Meloni (FdI), Matteo Salvini (Lega Nord) or Silvio Berlusconi (Forza Italia). Otherwise, the Draghi government is well positioned to last until the end of the mandate (June 2023).
A heavy dependence on Russian gas saps the recovery’s momentum
Prior to the Russia-Ukraine war, the Italian economy was expected to continue its outstanding post-pandemic recovery in 2022. Italy, however, is greatly dependent on Russian gas imports. Natural gas accounts for 42% of Italy’s energy mix. Of that, 45% is imported from Russia. Italian companies will face increased cost pressures, lower margins, and increased uncertainty, all of which will take a toll on capital investment. Similarly, the erosion of purchasing power is expected to have noticeable negative effects on household consumption (58% of GDP). These stagflationary headwinds are expected to cost 1.6 percentage points of GDP growth. In the event of a severe disruption to natural gas supply, be it by further EU sanctions or Russian retaliatory measures, this scenario would degenerate into one of severe restriction of manufacturing activity and an acute contraction of GDP. A return of growth momentum in 2023 is conditioned by the outcome of the war, as uncertainty remains high. Nonetheless, the Italian economy was strong prior to this shock, which will somewhat limit the damage. Italy will still receive unprecedented fiscal support from the EU. Out of the EUR 750 billion of the NextGenerationEU fund, 209 will be allotted to Italy (10.4% of 2019 GDP over 2021-2027) making it by far the single largest beneficiary in absolute terms. These funds are set to renovate the productive apparatus by funding the green transition, strengthening fiscal and digital infrastructures, as well as human capital and the social safety net. Beyond the direct increase in government expenditures, these investments are improving the overall productivity of labour and capital, incentivizing private investment and thus giving a double boost to aggregate demand. Tourism (13% of 2019 GDP) is expected to improve as the pandemic fades, but the unfavourable price effect in commodity imports will dominate and lead to a negative contribution of net exports.
The ECB’s decisions will be a test for sovereign risk
Despite the onset of the energy crisis, the Draghi government still expects the budget deficit to remain under 5.6% of GDP in 2022, encouraged by better than expected tax revenue at the start of the year. However, the likelihood for larger fiscal support in the form of transfers will only increase if the conflict lasts. Nonetheless, the main source of fiscal risk could result from the ECB’s reaction to rising inflation. Indeed, if the ECB tightens monetary policy aggressively enough, the sovereign’s debt servicing capacity could be compromised, especially considering the scale of Italy’s public debt. It is expected that the ECB will be less reactive to inflation than other major central banks, precisely because it cares highly about averting a debt crisis. While Italian creditworthiness is not at risk yet, it should be monitored as the geopolitical and energy situation evolves. Otherwise, in a new normal of higher commodity prices and supply disruption, potential GDP growth is expected to be lower in the medium-term. As a result, the debt ratio will only decrease marginally, since the fiscal consolidation strategy of the Draghi government was heavily reliant in reducing debt through growth rather than austerity. Italy also suffers from banking sector exposures to Russia, but these are not large enough to be systemic. Contingent liabilities of the state to the banking sector also represent a risk. The most concerning part are pre-pandemic guarantees on bank portfolios, which amount to 4.3% of GDP. Pandemic related loan guarantees represent a larger exposure (12% of GDP), but the quality of the underlying assets should be stronger. The degradation of the energy balance and the contraction in goods exports will reduce the current account surplus, but with external liabilities mostly in the form of Central Bank balances, external vulnerabilities are low.
Last updated: March 2022
Trade notes (cambiali) are available in the form of bills of exchange or promissory notes. Cambiali must be duly accepted by the drawee and stamped locally at 12/1000 of their value, being issued and payable in the country. When issued in the country and payable abroad, they are stamped at 9/1000, and finally stamped at 6/1000 in the country if stamped beforehand abroad, with a minimum value of €0.50. In case of default, they constitute de facto enforcement orders, as the courts automatically admit them as a writ of execution (ezecuzione forzata) against the debtor.
Signed bills of exchange are a reasonably secure means of payment, but are rarely used due to a high stamp duty, the somewhat lengthy cashing period, and the drawee’s fear of damage to his reputation caused by the recording and publication of contested unpaid bills at the Chambers of Commerce.
In addition to the date and place of issue, cheques established in amounts exceeding €1,000 and intended to circulate abroad must bear the endorsement non trasferibile (not transferable), as they can only be cashed by the beneficiary. To make the use of cheques more secure and efficient, any bank or postal cheque issued without authorisation or with insufficient funds will subject the cheque drawer to administrative penalties and listing by the CAI (Centrale d’Allarme Interbancaria), which automatically results in exclusion from the payment system for at least six months.
Bank vouchers (ricevuta bancaria) are not a means of payment, but merely a notice of bank domicile drawn up by creditors and submitted to their own bank for presentation to the debtor’s bank for the purposes of payment (the vouchers are also available in electronic form, in which case they are known as RI.BA elettronica).
Bank transfers are widely used (90% of payments from Italy), particularly SWIFT transfers, as they considerably reduce the length of the processing period. Bank transfers are a cheap and secure means of payment once the contracting parties have established mutual trust.
Amicable collection is always preferable to legal action. Postal demands and telephone dunning are quite effective. On-site visits, which provide an opportunity to restore dialogue between supplier and customer with a view to reaching a settlement, can only be conducted once a specific licence has been granted.
Settlement negotiations focus on payment of the principal, plus any contractual default interest as may be provided for in writing and accepted by the buyer.
When an agreement is not reached, the rate applicable to commercial agreements is the six-monthly rate set by the Ministry of Economic Affairs and Finance by reference to the European Central Bank’s refinancing rate, raised by eight percentage points.
When creditors fail to reach an agreement with their debtors, the type of legal action taken depends on the type of documents justifying the claim.
Based on cambiali (bills of exchange, promissory notes) or cheques, creditors may proceed directly with forced execution, beginning with a demand for payment (atto di precetto) served by a bailiff, preliminary to attachment of the debtor’s moveable and immoveable property (barring receipt of actual payment within the allotted timeframe). The resulting auction proceeds are used to discharge outstanding claims.
Creditors can obtain an injunction to pay (decreto ingiuntivo) if they can produce, in addition to copies of invoices, written proof of the claim’s existence by whatever means or a notarized statement of account. A forty-day period is granted to the defendant to lodge an objection.
Ordinary summary proceedings (procedimento sommario di cognizione), introduced in 2009, are used for uncomplicated disputes which can be settled upon simple presentation of evidence. Sitting with a single judge, the court determines a hearing for appearance of the parties, and delivers a provisionally executory ruling if it acknowledges the merits of the claim; the debtor however has 30 days to lodge an appeal.
The creditor must file a claim with the court (citazione) and serve summons to the debtor, who will file a defence (comparsa di constituzione e risposta) within ninety days via a preliminary hearing. The parties then provide briefs and evidence to the court. When the debtor fails to bring a defence, the creditor is entitled to request a default judgment. The court will usually grant remedies in the form of declaratory judgments, constitutive judgments, specific performance and compensatory damages but it cannot award any damages which have not been requested by the parties.
Undisputed claims are typically settled within four months, but the timescale to obtain an enforceable court order depends on the court. Overall, disputed legal proceedings take up to three years on average.
The current civil procedure code is intended to speed up the pace of proceedings by reducing the procedural terms, imposing strict time limits on the parties for submitting evidence and making their cases, and introducing written depositions in addition to oral depositions.
Enforcement of a legal decision
A judgment becomes enforceable when all appeal venues have been exhausted. If the debtor fails to comply with a judgement, the court can order compulsory measures, such as an attachment of the debtor’s assets or allowing the payment of the debt to be obtained from a third party (garnishee order) – although obtaining payment of a debt via the latter option tends to be more cost-effective.
For foreign awards, decisions rendered from a country in the EU will benefit from special procedures such as the EU Payment Order or the European Enforcement Order. Judgment from a non-EU country will have to be recognized and enforced on a reciprocity basis, meaning that the issuing country must be part of a bilateral or multilateral agreement with Italy.
Out-of court proceedings
The 2012 legal reform allows a debtor to file an application for composition by anticipation. Negotiation on an agreement commences 60 to 120 days prior to the initiation of judicial debt restructuration proceedings. The debtor retains control over the company’s assets and activities. A new pre-agreed composition plan may be agreed with the approval of creditors representing 60% of the debtor company’s debt.
This settlement is a court procedure which allows a company in financial difficulty to propose a debt restructuration plan. The debtor files a proposal to the court to repay the total amount outstanding to the secured creditors. If the court admits it, a commissioner trustee is appointed, and if the majority of the unpaid creditors accept the proposal, the court will officially validate the proceedings.
Alternatively, a debt restructuring agreement (accordi di ristrutturazione del debito) aims to restructuring the debt so as to rescue the debtor company from bankruptcy proceedings. The debtor must file a report on its ability to pay the remaining creditors in full, who otherwise can challenge the agreement before a bankruptcy court by requiring verification that their claims will be paid as normal.
This procedure aims to pay out the creditors by realising the debtor’s assets and distributing the proceeds to them. The status of insolvency justifies the adjudication of bankruptcy by the court, even where the insolvency is not due to the debtor’s misconduct. The court hears the evidences of the creditors’ claims and appoints a receiver to control the company and its assets. This receiver must liquidate all of the company’s assets and distribute the proceeds to the creditors to have the proceedings formally concluded.