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Country risk analysis for foreign businesses in Italy 2011

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  1. Introduction
  2. Key figures
  3. Summary of situation
    1. Brief explanation of key figures
    2. The immediate outlook
  4. The implications for businesses operating in Italy
    1. Insolvency trends
    2. Expected default Frequency in Italy
    3. Payment delays
    4. Restrictions on bank loans
    5. Warning signals
  5. Consequences- actions taken by third parties
  6. Background
    1. Sovereign debt spreads and credit default swap development
    2. SWOT analysis of Italy
    3. Country ranking comparison
  7. Conclusion

This work presents a country risk analysis in a particular country that has been recently found at center of Europe's economic crisis. Indeed, this country is Italy, which both economically and politically, has undergone a period of worsening along the recent years. Although Italy has a fairly low budget deficit, structural issues such as low productivity have resulted in an economic crisis. In addition, its public debt at 118 percent of GDP, is one of the highest in Europe. The objectives of this work are to provide recent, short but concise information on country's economic performance and analyse the immediate outlook. Then all possible implications that foreign investors should take into account when running their businesses in Italy are briefly set out. In this part, valuable information regarding country's affected sectors, insolvency trends, expected default value, payments delays, warning signs and bank lending restrictions is also given. As a consequence of conducting country risk analysis, third parties usually may consider to take measures to avoid conducting their businesses under excessive country risk. As an example, the actions to be taken by a multinational insurance company are presented. To end up, this work provides background information with regard to sovereign spreads and credit default swap development. In addition, there is a SWOT analysis, a simple but useful framework for analyzing Italy's strengths and weaknesses, as well as the opportunities and threats that Italy will have to face.

[...] Italy's membership inside the EMU leads the country to face a prolonged period of adjustment to restore competitiveness and return to stability in employment situation as the only available options to confront the imbalances of the economy The implications for businesses operating in Italy Sectors which currently, and in the short-term future, face more problems due to the economic difficulties. By and large, businesses across all sectors may have to face more problems in the future if they depend on: Public buyers / state investment and consumption. [...]

[...] Regarding business insolvency, there is less increase in 2011 and 2012, but still the level remains very high Key figures 2009 Real GDP growth (year-on-year change) CPI ( year-on-year change) Real private consumption (year-on-year change) Retail Sales ( year-on-year change) Industrial production ( year-on-year change) Unemployment rate Gross investment in fixed capital (year-on-year change) Real net exports (EUR billion) Fiscal balance of GDP) Government debt of GDP) Source: Global Insight 1.8 - 2.4 12.0 - 15.5 21.7 - Estimate 25.4 - Forecast 0.2 - 1.6 23.4 - Summary of situation 3.1 Brief explanation of key figures From a regional perspective, during the first stage of the ongoing economic crisis, Italy suffered larger losses in its production than most other countries within the European Union having registered in 2009 a decrease of Italy, taking into account the current situation in Portugal, Greece and Spain, plays an important role for the stability of the euro zone over the next years, since the country will have to face high debt levels and economic performance below the average. [...]

[...] Although the government survived in mid-November a confidence vote in both house of parliament, it still remains to be seen if the main political parties will keep their support when these structural reforms and additional austerity measures are presented to the parliament SWOT analysis of Italy Strengths Strong banking system with a high level of domestic funding High level of assets owened by the central government, regional and local authorities ( 1.815 billion euros) High level of household savings Important manufacturing industry, well positioned in value-added sectors Public deficit below the average in Europe Weaknesses Very high public debt GDP is highly dependent on exports GDP growth has been extremely weak for decades Lack of resources to invest in new infrastructures Lower average size of Italian companies compared to foreign competition (Germany and France) Indebtedness above the average regarding Italian companies with smaller capitalization The tax burden is high and will grow Lack of stimulus from the public budgets for economic growth Unit labor costs are not competitive in Europe Tax inefficiency (North / South split, underground economy, corruption, outdated laws) Threats Lack of leadership and political consensus It is possible a new reduction of sovereign ratings High volatility of raw material prices Potential credit crunch Partial collapse of the Italian banking system Weak domestic consumption Opportunities The managing criteria for public assets could improve the level of competition in several sectors through cost reductions and more efficient resource allocation. [...]

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