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Italian economy slows down: no North-South gap growth, according to the Bank of Italy

According to the recent report from the Bank of Italy dedicated to the Italian regions’ economy, the country is experiencing an economic slowdown, but there is good news: the gap between the North and the South is not widening. Southern Italy, which benefited from increased public sector involvement during the pandemic, seems to weather the impact of this industry slowdown better. This means that the traditional economic divide between the Northern and Southern regions remains unchanged, at least for now. The report also highlights that despite a widespread drop in the unemployment rate, there are still significant reserves of unused labor, especially in the Southern regions.

Economic Slowdown in 2023

The Bank of Italy’s report indicates that, after a significant recovery in 2022, the Italian economy has experienced a noticeable slowdown in the first half of 2023. This slowdown was highlighted by the quarterly indicator of the regional economy (ITER) developed by the Bank of Italy. The main cause of this decline has been a decrease in domestic and foreign demand. Furthermore, investments have lost momentum, despite incentives from the National Recovery and Resilience Plan (PNRR). Prospects suggest that sales will remain relatively stable.

The PNRR: Opportunity for the South

The National Recovery and Resilience Plan allocates 42% of its 111 billion euros of funding to the Southern regions. However, the Bank of Italy emphasizes that the South must also fully utilize ordinary resources and structural funds. After years of resource scarcity due to past economic crises, the South now has significant funds at its disposal, representing a great opportunity for both the country as a whole and the South.

Unspent Funds

The report reveals that, as of June 30th, 23 billion euros of national and EU cohesion funds had not yet been used, despite the requirement to spend them by the end of the year. However, it is possible that this sum has decreased in recent months, and regulatory changes could allow these funds to be redirected to other projects.

Italian Economy: employment and inflation

The report highlights that employment has continued to grow in the first six months of this year, with greater intensity in the Central-Northern regions. However, inflation, although decreasing since the beginning of the year, has eroded the disposable income of families, slowing down their consumption. This effect has been more pronounced for households with lower spending capacity, especially in the Northeastern and Island regions. Additionally, price increases have raised the risk of energy poverty, a more widespread issue in the Southern regions. Bank lending to businesses has contracted, and lending to households has slowed down.

Banks’ Selectivity in Loan Approval

Finally, the Bank of Italy observed that banks are becoming more selective in loan approvals. This selectivity is driven by the weakening economic environment and higher funding costs. However, the report notes that the credit quality deterioration rate remains at still modest levels across the country.

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