Focus on: ItalyGrant Thornton International Business Report 2013

GDP€1.48trillion

aproximately

Ninthlargesteconomyglobally

GDP€1.48trillion

aproximately

Ninthlargesteconomyglobally

GDP€1.48trillion

aproximately

Ninthlargesteconomyglobally

GDP€1.48trillion

aproximately

Ninthlargesteconomyglobally

Focus on: Italy 2

Introduction

Focus on: Italy

Italy is an advanced economy of more than 60m people. In 2012, its GDP was approximately €1.48trn (US$2trn), making it the ninth largest economy in the world.

Drawing on official data sources, such as the Economist Intelligence Unit (EIU) and the International Monetary Fund (IMF), and the Grant Thornton International Business Report (IBR), this short report considers the outlook for the economy, including the expectations of 200 businesses interviewed in Italy, and more than 12,500 globally, over the past 12 months.

Giuseppe Bernoni Managing partnerBernoni Grant Thornton

T +39 02 76 00 8751 E giuseppe.bernoni.it.gt.comwww.bernoni-grantthornton.it

120+

15,000

10.4% growth

countries where ourAudit, Tax and

Economy expectedto contract by

in 2013

in 2014

1.8%

forecast growth0.2%

Auditorsworldwide

unemploymentrate

Ranked in

Combined global

in financial services2012

revenues of$300m

in major marketsthe top 6

12%

professional work togetherand Advisory

$4.2bn

More than

Providing services for asset managers,fund administrators,

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‘large six’

60% $1.8trn400interviewsbusiness

BRIC average39%

52%

15%

Above the

of Italianbusinesses

remains aconcern for

Low demand

shortagehampersgrowth

Talent

of businessesexpect toincreaseinvestment

expect revenueto rise

16%

1.2 billion inhabitants and growing

top clientsof our member firms’

operate in financial services

Over

59.4%

12.2%

11%

6.6%

5.4%

5.4%

120+

15,000

10.4% growth

countries where ourAudit, Tax and

Economy expectedto contract by

in 2013

in 2014

1.8%

forecast growth0.2%

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unemploymentrate

Ranked in

Combined global

in financial services2012

revenues of$300m

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$4.2bn

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globally in 2012We are the fastest growingaccounting network

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Australiaremains a keytrade partner

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gross domestic product

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‘large six’

60% $1.8trn400interviewsbusiness

BRIC average39%

52%

15%

Above the

of Italianbusinesses

remains aconcern for

Low demand

shortagehampersgrowth

Talent

of businessesexpect toincreaseinvestment

expect revenueto rise

16%

1.2 billion inhabitants and growing

top clientsof our member firms’

operate in financial services

Over

59.4%

12.2%

11%

6.6%

5.4%

5.4%

120+

15,000

10.4% growth

countries where ourAudit, Tax and

Economy expectedto contract by

in 2013

in 2014

1.8%

forecast growth0.2%

Auditorsworldwide

unemploymentrate

Ranked in

Combined global

in financial services2012

revenues of$300m

in major marketsthe top 6

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professional work togetherand Advisory

$4.2bn

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Providing services for asset managers,fund administrators,

special purpose vehiclesand mutual funds

hedge funds,

revenues2012

globally in 2012We are the fastest growingaccounting network

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Australiaremains a keytrade partner

global accountancyorganisations

gross domestic product

as recognisedby Wall Street

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60% $1.8trn400interviewsbusiness

BRIC average39%

52%

15%

Above the

of Italianbusinesses

remains aconcern for

Low demand

shortagehampersgrowth

Talent

of businessesexpect toincreaseinvestment

expect revenueto rise

16%

1.2 billion inhabitants and growing

top clientsof our member firms’

operate in financial services

Over

59.4%

12.2%

11%

6.6%

5.4%

5.4%

of Italianbusinesses

growth

59.4%

12.2%

11%

6.6%

5.4%

5.4%

of Italianbusinesses

growth

59.4%

12.2%

11%

6.6%

5.4%

5.4%

unemploymentrate

12%

Focus on: Italy 3

The Italian economy continues to struggle with the fallout from the eurozone sovereign debt crisis, with a contraction in Q2 marking the eighth straight quarterly decline.

Focus on: Italy

Bond yields have fallen since peaking at 7% in late 2012 but political uncertainty following the inconclusive election at the beginning of 2013 and the sentence for tax evasion handed down to the leader of the centre-right, Silvio Berlusconi, have

• the economy contracted by 0.2% in Q2 from the previous quarter, a 2.1% year-on-year contraction

• the yield on ten-year bonds climbed to 4.5% in September, up from 4.2% in August

• exports rose by 0.2% in the first seven months of the year compared with the same period in 2012

• imports fell by 6.0% over the same period, widening the surplus to €18.2bn (US$24bn), up from €4.2bn in the same period of 2012

• the unemployment rate reached an all-time high of 12% in May, the highest since records began in 1977, with the number of people out of work now more than double the pre-crisis average.

Key Indicators

EconomyExport destinations (2012)

Germany

Germany

France

France

US

China

Spain

Spain

UK

Netherlands

Other

59.4%

12.2%

11%

6.6%

5.4%

5.4%

5.3%

4.5%

7.7%

8.5%

15.9%

58.1%

Others

Source: Economist Intelligence Unit (2013)

Import originations (2012)

seen yields rise back above Spain’s for the first time since March 2012. Italy remains a world leader in sectors such as engineering and fashion but high unit labour costs have prevented rising exports offsetting the negative impact of declining domestic demand.

120+

15,000

10.4% growth

countries where ourAudit, Tax and

Economy expectedto contract by

in 2013

in 2014

1.8%

forecast growth0.2%

Auditorsworldwide

unemploymentrate

Ranked in

Combined global

in financial services2012

revenues of$300m

in major marketsthe top 6

12%

professional work togetherand Advisory

$4.2bn

More than

Providing services for asset managers,fund administrators,

special purpose vehiclesand mutual funds

hedge funds,

revenues2012

globally in 2012We are the fastest growingaccounting network

One of the

Australiaremains a keytrade partner

global accountancyorganisations

gross domestic product

as recognisedby Wall Street

‘large six’

60% $1.8trn400interviewsbusiness

BRIC average39%

52%

15%

Above the

of Italianbusinesses

remains aconcern for

Low demand

shortagehampersgrowth

Talent

of businessesexpect toincreaseinvestment

expect revenueto rise

16%

1.2 billion inhabitants and growing

top clientsof our member firms’

operate in financial services

Over

59.4%

12.2%

11%

6.6%

5.4%

5.4%

120+

15,000

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countries where ourAudit, Tax and

Economy expectedto contract by

in 2013

in 2014

1.8%

forecast growth0.2%

Auditorsworldwide

unemploymentrate

Ranked in

Combined global

in financial services2012

revenues of$300m

in major marketsthe top 6

12%

professional work togetherand Advisory

$4.2bn

More than

Providing services for asset managers,fund administrators,

special purpose vehiclesand mutual funds

hedge funds,

revenues2012

globally in 2012We are the fastest growingaccounting network

One of the

Australiaremains a keytrade partner

global accountancyorganisations

gross domestic product

as recognisedby Wall Street

‘large six’

60% $1.8trn400interviewsbusiness

BRIC average39%

52%

15%

Above the

of Italianbusinesses

remains aconcern for

Low demand

shortagehampersgrowth

Talent

of businessesexpect toincreaseinvestment

expect revenueto rise

16%

1.2 billion inhabitants and growing

top clientsof our member firms’

operate in financial services

Over

59.4%

12.2%

11%

6.6%

5.4%

5.4% 120+

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countries where ourAudit, Tax and

Economy expectedto contract by

in 2013

in 2014

1.8%

forecast growth0.2%

Auditorsworldwide

unemploymentrate

Ranked in

Combined global

in financial services2012

revenues of$300m

in major marketsthe top 6

12%

professional work togetherand Advisory

$4.2bn

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Providing services for asset managers,fund administrators,

special purpose vehiclesand mutual funds

hedge funds,

revenues2012

globally in 2012We are the fastest growingaccounting network

One of the

Australiaremains a keytrade partner

global accountancyorganisations

gross domestic product

as recognisedby Wall Street

‘large six’

60% $1.8trn400interviewsbusiness

BRIC average39%

52%

15%

Above the

of Italianbusinesses

remains aconcern for

Low demand

shortagehampersgrowth

Talent

of businessesexpect toincreaseinvestment

expect revenueto rise

16%

1.2 billion inhabitants and growing

top clientsof our member firms’

operate in financial services

Over

59.4%

12.2%

11%

6.6%

5.4%

5.4%

in 2014forecast growth0.2%

Economy expectedto contract by

in 20131.8%

Focus on: Italy 4

Focus on: Italy

The Italian economy is expected to contract by 1.8% this year, with growth of only 0.2% forecast for 2014. The eurozone as a whole exited recession in Q2 and a healthier outlook for the key export markets of France and especially Germany following the re-election of Angela Merkel, should help exports grow by around 1.0% in both 2013 and 2014. Growth of around 1% per annum is forecast in 2015-17, dependent on a sustained improvement in external conditions.

Italy is still running a primary surplus – meaning the budget is in surplus excluding interest payments – and the overall budget balance is forecast to fall from -3.5% in 2013 to -2.6% by 2017. However, net government debt remains greater than the value of the entire economy – amongst advanced economies only Greece, Japan and Portugal have larger debt piles – and is expected to peak at 106% of GDP in 2014. Balancing the reduction of the debt burden with efforts to boost growth and reverse a rise in unemployment – which is expected to remain above 10% in the short to medium-term – is a key challenge.

Competitiveness remains a key issue with wages rising much faster than productivity over the past decade. However, fractious politics and the constant threat of government collapse may prevent the coalition led by Enrico Letta from implementing potentially unpopular structural reforms to improve labour and product markets.

Economic outlook

General government net debt (% GDP)

Source: International Monetary Fund (2013)

Greece

Japan

Portugal

Italy

Ireland

US

France

UK

Spain

Germany

100%

155%

134%

112%

103%

102%

88%

84%

83%

72%

57%

120+

15,000

10.4% growth

countries where ourAudit, Tax and

Economy expectedto contract by

in 2013

in 2014

1.8%

forecast growth0.2%

Auditorsworldwide

unemploymentrate

Ranked in

Combined global

in financial services2012

revenues of$300m

in major marketsthe top 6

12%

professional work togetherand Advisory

$4.2bn

More than

Providing services for asset managers,fund administrators,

special purpose vehiclesand mutual funds

hedge funds,

revenues2012

globally in 2012We are the fastest growingaccounting network

One of the

Australiaremains a keytrade partner

global accountancyorganisations

gross domestic product

as recognisedby Wall Street

‘large six’

60% $1.8trn400interviewsbusiness

BRIC average39%

52%

15%

Above the

of Italianbusinesses

remains aconcern for

Low demand

shortagehampersgrowth

Talent

of businessesexpect toincreaseinvestment

expect revenueto rise

16%

1.2 billion inhabitants and growing

top clientsof our member firms’

operate in financial services

Over

59.4%

12.2%

11%

6.6%

5.4%

5.4%

120+

15,000

10.4% growth

countries where ourAudit, Tax and

Economy expectedto contract by

in 2013

in 2014

1.8%

forecast growth0.2%

Auditorsworldwide

unemploymentrate

Ranked in

Combined global

in financial services2012

revenues of$300m

in major marketsthe top 6

12%

professional work togetherand Advisory

$4.2bn

More than

Providing services for asset managers,fund administrators,

special purpose vehiclesand mutual funds

hedge funds,

revenues2012

globally in 2012We are the fastest growingaccounting network

One of the

Australiaremains a keytrade partner

global accountancyorganisations

gross domestic product

as recognisedby Wall Street

‘large six’

60% $1.8trn400interviewsbusiness

BRIC average39%

52%

15%

Above the

of Italianbusinesses

remains aconcern for

Low demand

shortagehampersgrowth

Talent

of businessesexpect toincreaseinvestment

expect revenueto rise

16%

1.2 billion inhabitants and growing

top clientsof our member firms’

operate in financial services

Over

59.4%

12.2%

11%

6.6%

5.4%

5.4%

27% 2%

-8% -20% -29%

15%expect toincr

pectincr

pectease

investment

of businessesexpect revenue

to rise

16%

27% 2%

-8% -20% -29%

Focus on: Italy 5

Business growth prospectsBusiness confi dence in Italy remains fragile. In Q2-2013, -20% of business leaders expressed optimism in the economic outlook for the next 12 months (indicating that a majority were pessimistic). This was slightly above the southern Europe average (-29%) but well below the eurozone result (-8%).

This lack of confi dence feeds through to Italy’s business growth prospects. Just 16% of business leaders expect to see revenues increase over the next 12 months, slightly below the eurozone average (22%). This is well down on pre-crisis levels and remains

Focus on: Italy

Net percentage of businesses optimistic for their economy (Q2-2013)

Net percentage of businesses expecting to increase revenue (next 12 months)

2007 2008 2009 2010 2011 2012 2013

60%

70%

50%

40%

30%

20%

10%

Source: Grant Thornton IBR 2013 Source: Grant Thornton IBR 2013

around half of the result in 2011, when the region appeared to be recovering from the fi nancial crisis. Expectations for profi ts are similarly weak: across 2013, just 9% on average have indicated an expectation for profi ts to rise, although encouragingly this fi gure rose to 30% in Q2, up from -10% in Q1.

As confi dent businesses are more likely to take on risk, it is perhaps no surprise that investment plans in Italy remain subdued. Just 15% expect to increase investment in plant and machinery over the next 12 months, below the eurozone average (25%) and some still well down on pre-crisis levels (51% in 2008).

Global Eurozone ItalySouthern EuropeEU

Italy

Eurozone

120+

15,000

10.4% growth

countries where ourAudit, Tax and

Economy expectedto contract by

in 2013

in 2014

1.8%

forecast growth0.2%

Auditorsworldwide

unemploymentrate

Ranked in

Combined global

in financial services2012

revenues of$300m

in major marketsthe top 6

12%

professional work togetherand Advisory

$4.2bn

More than

Providing services for asset managers,fund administrators,

special purpose vehiclesand mutual funds

hedge funds,

revenues2012

globally in 2012We are the fastest growingaccounting network

One of the

Australiaremains a keytrade partner

global accountancyorganisations

gross domestic product

as recognisedby Wall Street

‘large six’

60% $1.8trn400interviewsbusiness

BRIC average39%

52%

15%

Above the

of Italianbusinesses

remains aconcern for

Low demand

shortagehampersgrowth

Talent

of businessesexpect toincreaseinvestment

expect revenueto rise

16%

1.2 billion inhabitants and growing

top clientsof our member firms’

operate in financial services

Over

59.4%

12.2%

11%

6.6%

5.4%

5.4%

erag

52%of Italianbusinesses

remains aconcern for

Low demand

Focus on: Italy 6

Focus on: Italy

Business growth constraintsContinuing economic and political uncertainty continues to dampen the growth prospects of Italian businesses. Over two-thirds (68%)say economic uncertainty is likely to constrain their expansion plans over the next 12 months, the same as southern Europe and well above the eurozone average (49%).

Percentage of businesses citing factor as a constraint on growth

52% 50%35%

Low demand

23%42% 43%

Cost of fi nance

41%24%

39%

Shortage of fi nance

68%49%68%

Economic uncertainty

55%37% 43%

Bureaucracy

11%

22%13%

Lack of skilled workers

Italy

Eurozone

Southern Europe

Perhaps of even more concern for the government, with a VAT rise and new services tax due to land in October 2013 and early 2014 respectively, and labour market reforms being considered, is the citing of bureaucracy (rules and regulations) as the second most pressing growth constraint. At 55% this is well above both the southern Europe (43%) and eurozone (37%) averages.

Low demand remains a concern for more than half of Italy’s businesses (52%), rising to almost three-quarters (72%) in Q2-2013

alone. Again this is above both the eurozone (35%) and southern Europe (50%) averages. The cost and availability of fi nance are affecting around two in fi ve Italian businesses, well above the eurozone average and close to double the rate before the fi nancial crisis.

Focus on: Italy 7

Focus on: Italy

Net percentage of businesses expecting to increase exports (next 12 months)

Source: Grant Thornton IBR 2013

A key aspect of the eurozone sovereign debt crisis has been the inability of economies to devalue their currencies to boost the price competitiveness of their goods and services. However, as a consequence of severe austerity measures and low levels of economic activity, economies such as Spain have gone through a painful internal devaluation, lowering wages and selling prices relative to their competitors.

The IBR results indicate that Italian businesses have not followed Spanish fi rms down this path. Over the past 12 months, net 13% of Italian businesses have indicated an expectation to raise prices compared with -11% of Spanish peers. Since 2011, a majority of Italy’s businesses have raised prices whilst a majority in Spain have slashed theirs. Over the next 12 months, 37% of Italian businesses plan to raise wages, compared with just 28% of Spanish peers. Tellingly, Spain’s unit labour costs have fallen 10% from their 2009 peak. Italy’s have risen by almost 5%.

Restoring competitiveness

2007 2008 2009 2010 2011 2012 2013

35%

30%

25%

20%

15%

10% Italy

Spain

Net percentage of businesses expecting to increase selling price (next 12 months)

20%

30%

40%

50%

2007 2008 2009 2010 20122011 2013

10%

-10%

-20%

Italy

Spain

There are both positive and negative consequences of this approach. The key positive is the effect on exports: in Spain the number of exporting businesses has increased by 28% and merchandise exports have increased by 20% since 2007, with a greater share going outside the EU. Net 31% of Spanish businesses expect to increase exports over the next 12 months, compared to just 10% in Italy.

The downside is the effect on jobs. Over the past 12 months, just net -1% of businesses in Italy have shed people. This compares with -24% in Spain where businesses have been losing workers consistently since 2009. Consequently, the unemployment rate is touching 27% in Spain – more than double the rate in Italy – rising to 57% for young people.

© 2013 Grant Thornton International Ltd.

‘Grant Thornton’ refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to theirclients and/or refers to one or more member firms, as the context requires.

Grant Thornton International Ltd (GTIL) and the member firms are not a worldwide partnership. GTIL and each member firm is a seperate legal entity. Services are delivered by the member firms. GTIL does not provideservices to clients. GTIL and its member firms are not agents of, and do not obligate, one another and are not liable for one another’s acts or omissions.

www.gti.org

CA1310-02

IBR 2013 methodologyThe Grant Thornton International Business Report (IBR) is the leading mid-market business survey in the world, interviewing approximately 3,300 senior executives every quarter in listed and privately-held businesses all over the world. Launched in 1992 in nine European countries, the report now surveys more than 12,500 businesses leaders in 45 economies on an annual basis, providing insights on the economic and commercial issues affecting companies globally.

The data in this report are drawn from interviews with chief executive officers, managing directors, chairmen and other senior decision-makers from all industry sectors in businesses with 100-499 employees.

Q2 data is drawn from 3,300 interviews globally (50 in Italy) conducted in May 2013. 2013 data is drawn from over 12,500 interviews (200 in Italy) conducted between September 2012 and May 2013.

To find out more about IBR, please visit: www.internationalbusinessreport.com.

Dominic KingGrant Thornton International LtdGlobal research managerT +44 (0)207 391 9537E dominic.king@gti.gt.com

Alessandra MorgantiBernoni Grant ThorntonMain IBR contactT +39 02 006 339 33E alessandra.morganti@bernoni.it.gt.com