Country Portfolio

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Assignment 1

The paper analyzes macroeconomic data from 1960-2018 to see why economic crisis occured in Italy. Post 1992, Italy outperformed most European countries to make sure that EU conditions are met resulting in decreasing inflation, stabilising wages, decreasing unemployment and raising profit shares. Satisfying all conditions of EMU rulebook has resulted in the production being slowed down and there is a constant decline in all the economic indicators. The decline in demand had come from a lack of competitiveness on technological scenario. The common currency in form of the Euro is overvalued resulting in a failure of Italian firms to compete. The firms have not been able to utilize their capacity to the maximum and their profitability is reduced. EMU rulebook has locked the Italian economy in terms of economic decline. Analysis shows that sternness has to be ended and technological competitiveness has to be improved. The solution must result in long run growth which will be initiated by investment and innovation CITATION Sto19 \l 1033 (Storm).

The economic growth has declined in Italy from the mid-1990s. Long term data analysis has indicated that this decline cannot be blamed on the simple business cycle fluctuations. Many countries using Euro have shown much better economic performance over the same period of time. The sources of economic decline have been investigated by applying business cycle accounting procedure. The relative importance of efficiency, labour, investment and government wedges in business cycle in Italy from 1982 to 2008. Efficiency is the main factor which has affected Italian economy and it also initiated the stagnation phase in 1995. Findings show that decline in labour market disturbances that occurred during the 1990s controlled the stagnation effect to a certain extent and did not allow an even more slowdown in per capita output growth CITATION Ren14 \l 1033 (Orsi and Turino).

GDP

CITATION CEI17 \l 1033 (CEIC)

The lowest point is 2009 which has been inflicted by the economic recession that hit the whole world. There is no evident pattern in the gross domestic product for Italy in the last ten years. There has been negative growth in GDP over the ten year period considered. The economy has been stagnant to say the least. The highest point of this graph is at 2011 which is due to the funding made by some other countries because Italy could not handle interest payments on debt. This settlement was also short term as shown by the graph going towards the negatives. Number of cars has been selected as a non-economic indicator to be discussed. There has been an increase in the number of cars in terms of passenger cars as well as private cars. This increase shows that people are getting affluent with the passage of time despite lower demand shown by the economy as a whole. Most recently, there has been a considerable increase in the number of cars registered by Italian people. Car may be considered necessity but keeping car is not at all cheap for the people because of the rising petrol prices.

GDP per Capita for Italy

There are some similar trends in the GDP data and per capita GDP over a period of ten years. The highest points of both graphs coincide with the year 2011. There is a clear difference in lowest points of both measures. The graph does not match with the living standard of Italians because number of cars owned by them has been on an increase there is a considerable decrease in per capita GDP for people.

Inflation rate

The above data shows fluctuation in inflation rates from the year 2007 to 2017. This trend in inflation is manageable for the country because it has not risen to a higher level in any year. In the year 2014, there was zero inflation which would also result in stagnant prices. The country is experiencing creeping inflation over a period of ten years because inflation figure has not gone beyond the 3 percent mark at any point in time during the analysis period.

Analysis

There has been low inflation in the country over the ten year period under consideration. There has been no significant impact of the world economic crisis on per capita GDP and inflation. In the year 2011, all the measures showed high values with inflation being the highest among ten year period. Higher inflation with higher per capita income will mean that people are having better living standards than the past. Yes the analysis does match the evidence provided by the two articles in a way that there has been a stagnant economic performance shown by the country over the past ten years. A fluctuating rate of real GDP growth and a similarly fluctuating per capita income for people of country do not show a positive trend. A low rate of inflation should see more investment coming in but the economy does not offer as many projects to attract new investors. As discussed earlier, the hike shown in real GDP in 2011 was short term and was supported by organizations like EU. The country should try and be competitive in terms of technological advancements and include it as an integral part of its economy. The major problem faced during this study was that the 10 year data was not available in form of excel tables and I had to take full pictures of graphs instead of making them by gathering data in excel. Yes I was surprised to see the facts about Italian economy because being a part of EU, I thought that Italy would have a strong economy.

Works Cited

BIBLIOGRAPHY CEIC. "https://www.ceicdata.com/en/indicator/italy/real-gdp-growth." 1 October 2017. https://www.ceicdata.com. 4 November 2019.

Orsi, Renzo and Francesco Turino. "The last fifteen years of stagnation in Italy: a business cycle accounting perspective." Emprical Economics (2014): 469-494.

Storm, Servaas. "Lost in deflation: Why Italy’s woes are a warning to the whole Eurozone." Working Paper. 2019.