ROME, March 28 -- Increased inflation and a slump in the European Union's (EU) largest economy, Germany, are major risks for the competitiveness of Italian companies, the National Institute of Statistics (ISTAT) stated.

In a report on the competitiveness of Italy's productive sectors unveiled on Thursday, ISTAT detailed Italy's main economic trends in 2023, and perspectives for the current year.

It recalled that the global economic climate in 2023 was marked by uncertainty fuelled by geopolitical tensions and restrictive monetary policy, which resulted in a slowdown in global growth.

EU KEY TRADE PARTNER

"In this context ... the recession in Germany -- our main trading partner -- represented a further slowdown factor for Italian growth," ISTAT said.

According to the report, the decline in world trade caused a drop of 3.7 percentage points in Italian exports (in volume), 1.5 points in imports, and 0.8 points in gross domestic product (GDP).

The slowdown of the German economy -- which contracted by 0.3 percent last year according to Germany's Federal Statistical Office -- led to a 1 percentage point drop in Italian exports, 0.3 in imports, and 0.2 points in GDP.

EXPORTS TO CHINA UP

Italian sales abroad in 2023 stagnated in terms of value, and decreased by 5.1 percent in volume. More specifically, exports to non-EU markets grew by 2.5 percent in value, while those to EU markets dropped by 2.3 percent, and both contracted in volume.

"Exports to China bucked the trend," ISTAT noted, with a 16.8 percent increase in value, and 0.9 percent in volume.

Overall, over 50 percent of Italy's manufacturing exports went towards seven markets (Germany, France, the United States, Spain, the United Kingdom, Russia and China) in 2023.

RATE CUT EXPECTED

Inflation in the euro area is expected to keep falling this year, as it did in 2023, and a cut in interest rates was deemed likely. However, should this forecast prove wrong, the impact on Italian companies would be serious, the report warned.

If rates are not cut and inflation remains at 2022-23 levels, about 25 percent of Italian companies would be considered financially "at risk" or "at high risk."

This would mark an inversion of a positive trend, since Italian firms with unsustainable profitability (those at risk and high risk) dropped from 34.1 percent in 2011 to 20.4 percent in 2022.

BUSINESS MORAL UP

Separate ISTAT data released on Thursday showed morale among Italian firms is up, with the manufacturing confidence index rising to 88.6 in March against 87.5 last month and the composite business morale index (manufacturing, retail, construction and services) climbing to 97.0 from 95.9.

As for competitiveness, ISTAT stated that Italy's most important sectors in terms of systemic importance (the capacity to affect overall economic dynamics) were agribusiness, road transport, energy, construction, clothing, industrial machinery, pharmaceuticals and health.

These eight sectors generate 56.4 percent of value-added and 52.3 percent of employment in the country.

  - Xinhua