Eurozone CRISIS: Italy service sector hit as growth stagnates – job cuts reported

February 6, 2019
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Italian service providers saw business fall in January prompting two firms to cut staff for the first time in more than two years, Bloomberg reports. A drop in domestic demand combined with falling export orders were blamed for the job cuts. This latest bad news comes after it emerged Italy’s economy slipped into recession once again at the end of last year, the latest in a series of downturns since the 2008 financial crash.

A weakening global economy combined with rising unemployment, mounting public debt and an unpredictable populist government in Rome means a crisis could be just around the corner.

In the final three months of 2018, Italy’s economy shrank by 0.2 percent following a 0.1 percent drop in the third quarter.

Meanwhile in the eurozone, growth was at just 0.2 percent at the end of 2018 – the same as Q3.

Senior officials for the 19-member euro area have previously warned the bloc could easily “sleepwalk into a crisis” unless Italy’s debt problem is addressed.

The Mediterranean nation is already saddled with £2trillion (€2.3trillion) of national debt, or 131 percent of its GDP – way about a 60 percent limit imposed by the EU.

The coalition government in Rome had proposed a 2019 budget which would see Italy take on more debt in order to fund election pledges such as tax cuts and a universal basic income.

But after battling with the EU for months, Italy eventually backed down in the face of unprecedented fines from the European Commission.

The resulting budget saw key measures watered down and the opposition accused the government of putting forward plans which had been dictated by Brussels.

Yesterday, Italy’s government borrowing costs briefly rose to their highest level in three weeks, pushed up by heightened concern that a deteriorating economic outlook will worsen the country’s fiscal position.

Italy’s 10-year yield rose almost eight basis points to 2.806 percent before drifting lower to around 2.75 percent, up about 2 basis points on the day.

Chris Scicluna, head of economic research at Daiwa Capital Markets in London said: “The scepticism that we saw last year about the wisdom of the new government’s fiscal plans is being revived by the economic data.

“There is a decent chance that we will see another quarter of negative growth in Q1.”

Daiwa expects the Italian economy to grow just 0.1 percent in 2019.

Last month, the Bank of Italy cut its 2019 economic growth forecast to 0.6 percent from 1 percent.

“Italy has a huge debt burden and they (the government) had hoped for better growth,” said Michael Hewson, chief markets analyst at CMC Markets. “At some point this year, Italy will flare up as a problem once more.”



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