ITALY GOES INTO RECESSION | Marvin Germo

ITALY GOES INTO RECESSION

By: Marvin Germo | February 4, 2019

About the Recession

Italy, once again, has stumbled back into recession. This is the third time in a decade that the country has experienced such fall back. It is also one of the reasons why the larger eurozone slowed last year together with the issues related to Brexit-a trade spat between China and US. The country failed to post a significant growth in success between failures. This means it’s been lagging and now behind the neighborhood of eurozone. In the last quarter of 2018, Italy contracted a 0.2% GDP, which is way below of what it should be earning given the fact that it is the 3rd largest economy in eurozone.

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What Caused The Recession?

The main part of the recession Italy is experiencing now is the petty quarrel between the country’s new populist government and European Union’s Executive Commission. Both parties are arguing over the budget plans of the new government. This spat has already affected the country, sabotaging business confidence and increasing the Italy’s borrowing rates in bond markets. Although the Italian government said the problems originated abroad, data proved otherwise since there was a positive net trade during the second quarter and the GDP of Spain and France were solid during the last quarter of 2018. The fall in domestic demand and the amendments in the emission standards are also seen as a major factor affecting the GDP of the country.

Italy’s GDP For The Past Quarters

Italy failed to show a growth in GDP for the past quarters of 2018. During the first quarter, GDP percentage was 0.3%, with $538,376 Million in figures. On the second quarter, it was down to 0.2%, which was $526,071 Million. On the third quarter, it fell to 0.1% with a GDP of $511,468 Million. On the last quarter, it dropped to 0.2%, throwing the economy into recession.

What Will Happen To Italy?

Analysts defines the Italian economy as under “technical” recession. The 2018 sudden fall of economy will affect Italy in 2019 and even in the coming years. Because of the heavy spending plan of the new populist government, the European Central Bank held back and will give less monetary support to the country. This will limit the resources of the government and since the plan was to reduce tax and spend more, how are they going to push through with this proposal if the country is still at €2.3 trillion debt? The changes in emission standards also put the auto industry at stake. It will slow down production and can possibly wash out the auto manufacturing from the economy.

Impact to the Philippines

The possible spillovers of the Italian economy in the Philippines can be through the financial market and the trade of goods and services. The turmoil in the European economy can impact investors and their perception of risks. Investors would seek for investment protection and therefore focus more on the safe financial instruments. As for the trade of goods and services, the Philippine export will surely decline as well as remittances coming from Europe.

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