Estudios Económicos
Italy

Italy

Population 60.7 millions
GDP 30507 US$
A4
Country risk assessment
A2
Business Climate
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Synthesis

major macro economic indicators

  2015 2016 2017(f) 2018(f)
GDP growth (%) 0.9 1.1 1.5 1.3
Inflation (yearly average, %) 0.1 -0.1 1.4 1.2
Budget balance (% GDP) -2.6 -2.5 -2.1 -1.8
Current account balance (% GDP) 1.5 2.6 2.5 2.5
Public debt (% GDP) 131.5 132.0 132.1 130.8

(f): forecast

STRENGTHS

  • Reform effort (labour market, banking sector, insolvencies...)
  • Manufacturing industry still important
  • Renewed competitiveness and stronger export sector
  • Improvement in the financial position of businesses
  • High-quality infrastructure
  • Considerable tourism potential

WEAKNESSES

  • Private and public debt levels still high, very negative net external position
  • Duality of the labour market, high unemployment and high structural unemployment
  • Significant proportion of small, under-productive enterprises
  • Fragmented political landscape, unity of the country weakened by regions’ push for autonomy
  • Regional disparities
  • Low administrative efficiency

Risk assessment

Consolidation of the recovery in 2018

Italy’s economic recovery was confirmed in 2017, after several consecutive years of lacklustre growth. Favourable financing conditions and higher foreign demand have helped revive investment, especially in the manufacturing sector. Businesses have also benefited from the incentives under the Industrial Plan 4.0 aimed at accelerating investment in industrial innovation. Business failures are also declining, except in the construction sector. Household consumption benefited from the recovery in the labour market, but was less dynamic than in 2016, hit by long-term slower growth in purchases of durables. Growth is expected to slow slightly in 2018, but the economy will continue to show momentum. The contribution of cyclical effects are, however, likely to be less positive. The stronger euro will reduce the contribution of net exports to growth. Consumption will continue to slow, because of less sustained wage and job growth. Inflation will dip as a result of the stronger euro and lower energy costs. Tax incentives provided for in the 2018 budget will, however, drive investment. Positive growth should be observed in the construction sector after several quarters of downturn, thanks to a recovery in demand for residential housing and a slight increase in public investment.

 

The banking system is getting stronger but risk has not been eliminated

The health of the banking system improved sharply during the course of 2017 after the state recapitalised Monte di Paschi di Sienna Bank and wound up two large Venetian banks. The restoration of confidence in the banking system should facilitate access to credit for Italian businesses, which will continue to benefit from advantageous financing terms. But the very structure of the banking system, in which the medium-sized regional banks suffer from considerable exposure to non-performing loans remains problematic, especially as the ECB is expected to tighten its guidelines for banks regarding non-performing loans and to demand a ratio of 100% coverage for bad debts.

The upturn in activity in 2017 enabled Paolo Gentiloni’s government to bring the public deficit down to 2.1% in line with the target set by the Stability Programme. Civil service wage moderation (salary freeze since 2010) and cuts to health spending have, moreover, helped reduce spending despite the EUR 10-billion bill for the bank bailout. Despite encouraging growth forecasts for 2018, the government has chosen to maintain the deficit target of 1.6% in 2018, compared with 1.2% fixed under the Stability Programme. It is, however, likely that growth will be slightly higher than expected. The slowdown in consumption and the postponement of the hike in VAT from 2018 to 2019 will limit revenue growth, while spending will remain unchanged. Italian public debt will remain high, but weak interest rates will be reflected in lower interest payments.

The current account surplus will be maintained in 2018 but the rise in imports generated by higher demand for foreign goods will outpace that of exports.

 

Parliamentary elections in 2018

Following the resignation of Matteo Renzi, Italy’s centre-left leader, the Democratic Party (PD) appointed Paolo Gentiloni to manage current business while waiting for the parliamentary elections scheduled for spring 2018. Italy has meanwhile introduced a new electoral law in preparation for the elections. Passed in October 2017, the Rosatellum Law came out of an agreement between the PD and the two main right-wing opposition parties, Matteo Salvini’s Lega Nord (Northern League) and Silvio Berlusconi’s Forza Italia. The polarisation of Italian political life between the three blocs - namely the right, the left and the Five Star Movement (M5S) after the debacle of the PD during the referendum (over constitutional reform) would, under the former law, have sharpened institutional blockages. But the Rosatellum Law will give preference to a first-past-the-post method corrected by a measure of proportional representation with a minimum required threshold for entering parliament of 3% of the national vote for single parties and 10% for coalitions and will actually penalise the M5S. However, the populist party, founded by Beppe Grillo and led by Luigi Di Mario, is still climbing in the opinion polls, despite the setbacks experienced in some localities, and represents the second political force in Italy and is gaining ground on the socialists. The PD is in a weakened position in parliament despite good economic results. It is true that Matteo Renzi still has a hold over the Democratic Party, of which he took over the leadership in spring, winning the primaries, but defections within the centre-left are multiplying. The overwhelming favourite remains Berlusconi’s Party, the Forza Italia, which is making a big comeback in Italian politics. The victory of the Italian right-wing in Sicily, with the support of the Lega Nord and the Fratelli de Italia, bolsters the former prime minister’s lead, even though he has been caught up in and under investigation for various scandals.

Last update : January 2018

Payment

 

Trade notes (cambiali) are available in the form of bills of exchange or promissory notes. Cambiali must be duly accepted by the drawee and stamped locally at 12/1000 of their value, being issued and payable in the country. They are stamped locally at 9/1000, being issued in the country and payable abroad, and finally stamped at 6/1000 in the country if stamped beforehand abroad, with a minimum value of EUR 0.50.

In case of default, they constitute de facto enforcement orders as the courts automatically admit them as a writ of execution (ezecuzione forzata) against the debtor.

Signed bills of exchange are a reasonably secure means of payment, but are rarely used due to a high stamp duty, the somewhat lengthy cashing period, and the drawee’s fear of damage to his reputation caused by the recording and publication of contested unpaid bills at the Chambers of Commerce.

In addition to the date and place of issue, cheques established in amounts exceeding EUR 1,000 and intended to circulate abroad must bear the endorsement non trasferibile (not transferable), as they can only be cashed by the beneficiary.

To make the use of cheques more secure and efficient, any bank or postal cheque issued without authorisation or with insufficient funds will subject the cheque drawer to administrative penalties and listing by the CAI (Centrale d’Allarme Interbancaria), which automatically results in exclusion from the payment system for at least six months.

Bank vouchers (ricevuta bancaria) are not a means of payment, but merely a notice of bank domicile drawn up by creditors and submitted to their own bank for presentation to the debtor’s bank for the purposes of payment (the vouchers are also available in electronic form, in which case they are known as “RI.BA elettronica”).

Bank transfers are widely used (90% of payments from Italy), particularly SWIFT transfers, as they considerably reduce the length of the processing period. Bank transfers are a cheap and secure means of payment once the contracting parties have established mutual trust.

 

Debt collection

Amicable phase

Amicable collection is always preferable to legal action. Demands and telephone dunning are quite effective. On-site visits, which provide an opportunity to restore dialogue between supplier and customer with a view to reaching a settlement, can only be conducted once a specific licence has been granted.

Settlement negotiations focus on payment of the principal, plus any contractual default interest as may be provided for in writing and accepted by the buyer.

When an agreement is not reached, the rate applicable to commercial agreements is the six-monthly rate set by the Ministry of Economic Affairs and Finance by reference to the European Central Bank’s refinancing rate, raised by eight percentage points.

 

Legal proceedings

When creditors fail to reach an agreement with their debtors, the type of legal action taken depends on the type of documents justifying the claim.

 

Fast-track proceedings

Based on “cambiali notes” – bills of exchange, promissory notes – or cheques, creditors may proceed directly with forced execution, beginning with a demand for payment (atto di precetto) served by a bailiff, preliminary to attachment of the debtor’s moveable and immoveable property (barring receipt of actual payment within the allotted timeframe). The resulting auction proceeds are used to discharge outstanding claims.

Creditors can obtain an injunction to pay (decreto ingiuntivo) if they can produce, in addition to copies of invoices, written proof of the claim’s existence by whatever means or a notarized statement of account. A forty-day period is granted to the defendant to lodge an objection.

Ordinary summary proceedings (procedimento sommario di cognizione), introduced in 2009, are used for uncomplicated disputes which can be settled upon simple presentation of evidence. Sitting with a single judge, the court determines a hearing for appearance of the parties, and delivers a provisionally executory ruling if it acknowledges the merits of the claim; the debtor however has 30 days to lodge an appeal.

 

Ordinary proceedings

The creditor must file a claim with the court (citazione) and serve summons to the debtor, who will file a defence (comparsa di constituzione e risposta) within ninety days via a preliminary hearing. The parties then provide briefs and evidence to the court. When the debtor fails to bring a defence, the creditor is entitled to request a default judgment. The court will usually grant remedies in the form of declaratory judgments, constitutive judgments, specific performance and compensatory damages but it cannot award any damages which have not been requested by the parties.

Undisputed claims are typically settled within four months, but the timescale to obtain an enforceable court order depends on the court. Overall, disputed legal proceedings take up to three years on average.

The current civil procedure code is intended to speed up the pace of proceedings by reducing the procedural terms, imposing strict time limits on the parties for submitting evidence and making their cases, and introducing written depositions in addition to oral depositions.

 

Enforcement of a legal decision

A judgment becomes enforceable when all appeal venues have been exhausted. If the debtor fails to comply with a judgement, the court can order compulsory measures, such as an attachment of the debtor’s assets or allowing the payment of the debt to be obtained from a third party (garnishee order) - although obtaining payment of a debt via the latter option tends to be more cost-effective.

For foreign awards, decisions rendered from a country in the European Union (EU) will benefit from special procedures such as the EU Payment Order or the European Enforcement Order. Judgment from a non EU country will have to be recognized and enforced on a reciprocity basis, meaning that the issuing country must be part of a bilateral or multilateral agreement with Italy.

Insolvency proceedings

Out-of court proceedings

The 2012 legal reform allows a debtor to file an application for composition by anticipation. Negotiation on an agreement commences 60 to 120 days prior to the initiation of judicial debt restructuration proceedings. The debtor retains control over the company’s assets and activities. A new pre-agreed composition plan may be agreed with the approval of creditors representing 60% of the debtor company’s debt.

 

Restructuring proceedings

This settlement is a court procedure which allows a company in financial difficulty to propose a debt restructuration plan. The debtor files a proposal to the court to repay the total amount outstanding to the secured creditors. If the court admits it, a commissioner trustee is appointed, and if the majority of the unpaid creditors accept the proposal, the court will officially validate the proceedings.

Alternatively, a debt restructuring agreement (accordi di ristrutturazione del debito) aims to restructuring the debt so as to rescue the debtor company from bankruptcy proceedings. The debtor must file a report on its ability to pay the remaining creditors in full, who otherwise can challenge the agreement before a Bankruptcy court by requiring verification that their claims will be paid as normal.

 

Liquidation

This procedure aims to pay out the creditors by realising the debtor’s assets and distributing the proceeds to them. The status of insolvency justifies the adjudication of bankruptcy by the court, even where the insolvency is not due to the debtor’s misconduct. The court hears the evidences of the creditors’ claims and appoints a receiver to control the company and its assets. This receiver must liquidate all of the company’s assets and distribute the proceeds to the creditors to have the proceedings formally concluded.

Insolvency trend Italy
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