The size of the global crisis that is being experienced can be seen from many perspectives. The European Central Bank (Note 1)
, for example, has spoken of the most significant crisis in decades, underlining its profound and extensive synchronisation at international level. The European Commission (Note 2)
also notes its breadth and negative spillover effects that are increasingly hitting emerging economies as well. The International Monetary Fund (Note 3)
, finally, estimates a reduction in GDP for the current year in the advanced economies and particularly weak growth globally. The process of economic globalisation greatly accelerated at the beginning of the 1990s and increased the dependence of local economies on the international framework. Consequently the evolution of the latter may have repercussions of varied intensity on Italian regions as a result of the differentiated network of existing relations between a particular region and other areas of the world. The study that follows intends to provide several points to reflect on concerning the flexibility of the Veneto system when it has had to face various business cycles in recent history and its evolution in terms of the composition of its production structure.
Flexibility in economic cycles (Note 4)
In order to create a key that will help interpret the current crisis, it would be useful to analyse the phases of recession (Note 5)
and subsequent periods of recovery that have alternated since the 1970s.
The period between 1970 and 2009 (Note 6)
reveals a general homogeneity between the changes in GDP in Veneto and in Italy. Both at regional level and for Italy in general, analysis reveals how the intensity of variations in the 1970s decreased in the following decades, a trend shared by all the major industrialised countries (Note 7)
. Despite similarities with the national figure, Veneto's economy in general demonstrates greater responsiveness: in phases of growth the region's GDP has grown much more than Italy's, while in phases of slowdown or recession the decline in the regional economy has generally been more intense. This means the vulnerability of the region is greater than Italy's, but also that its ability to take advantage of opportunities is greater (Note 8)
On the basis of the history of the economy in Veneto and Italy, four cycles have been identified. The first period is from 1970-1976, the second includes the years 1976-1988, the third goes through 2000, the fourth covers the period 2000-2009 (Note 9)
. In this analysis Veneto is compared with other Italian regions (Piemonte, Lombardia and Emilia Romagna) and European regions (Baden-Württemberg and Bavaria), with Italy, the European Union (EU15 (Note 10)
), and the United States (Figure 1.2.1)
and (Figure 1.2.2)
From the data, several important points emerge to reflect on.
The economic crises that have occurred since the 1970s have been of differing severity and have affected the places examined in different ways. For example, the decline in GDP in the mid-1970s due to the energy crisis hit all the areas significantly (except for Emilia Romagna and Bavaria), while the one in the first years after 2000 was more circumscribed and, in any case, of a more modest magnitude.
The impact and degree of synchronisation of the crises are the result of a mixture of external and internal factors regarding the area under examination. For example, the depression of the early 1990s seems to be marked by significant problems at international level, to which several local factors were added (significant economic reforms in Italy and its regions and the effects of German reunification for Baden-Württemberg and Bavaria). Furthermore, in reference to the recession at the beginning of this decade, the United States in 2001, and the EU15 in the following year, experienced the greatest slowdowns; in Italy GDP growth was zero in 2003, being particularly penalised by the appreciation of the euro and the weak international business cycle. In this context, it is interesting to note that the climate of uncertainty that characterised the international geopolitical situation between 2001 and 2002, and the loss of competitiveness of exports caused by the appreciation of the euro and the increased competition from emerging economies, struck the Italian regions under examination harder than the nation as a whole. Indeed, although Italian GDP was stationary in 2003, Veneto and Piemonte had already experienced a decline in 2002 and Emilia Romagna in 2002-2003, but Lombardia did not. Such differentiated trends can be explained by these regions' greater dependence on the international scene as they are more exposed to foreign markets than most of Italy.
In the four cycles studied the average growth of GDP experienced a general slowdown in the areas under examination. From 1970-1976 Italy and the Italian regions (Note 11)
grew economically more than the EU15; from 1976-1988 this record of greater economic growth was maintained only compared to the EU15, but was not true for Piemonte; in the two following cycles both Italy and the four Italian regions in question had less economic growth than the other areas. (Figure 1.2.3)
The trend in GDP in Veneto
In the four cycles considered, the average growth of GDP in Veneto was higher than the national one. In more detail in 1970-1976 the region had a index of growth lower only than that of Emilia Romagna, while in 1976-1988 Veneto only grew less than the United States and the German regions; in the 1988-2000 period Veneto's GDP growth, while weak compared to international growth, ranked first among the Italian and other regions examined; in the following period Veneto's GDP grew faster than Italy's, Emilia Romagna's and Piemonte's, even though it continued to experience more limited growth than the other areas considered at international level. Compared to Italy Veneto shows, on average, a greater decline in moments of crisis, but also a greater ability to exploit opportunities of recovery. Furthermore, in general, compared to the other Italian regions examined, Veneto was less affected by periods of recession revealing at the same time a better ability to recover. In more detail, during the crisis of the mid-1970s the region experienced a decline in GDP slightly more limited than that of Piemonte and Lombardia, and growth in the three-year period following was greater than these two regions, Emilia Romagna and Italy. In 1983 the Veneto economy experienced a slight decline, but already in 1984 the principal components of demand and GDP demonstrated a high level of growth, while the other Italian regions experienced a more significant contraction than the national economy and a slower recovery. The primacy of Veneto is yet more evident in 1993, when its economy underwent a slowdown, but not the recession that was experienced in Italy and the other Italian regions; in 1994, in the context of a general recovery, Veneto underwent a significant acceleration in GDP, taking advantage of the weakness of the lira, and an increase in exports greater than that of the other areas. In the first years after 2000, finally, the contraction in GDP in Veneto was greater than the other regions, while in comparison to the latter the recovery was more intense.
The components of the economic balance
In the phases of recession and the following recovery, the role of the principal components of demand has specific as well as some common characteristics. Limiting the analysis to the Italian regions, the importance of foreign trade is common to all the crises. On the one hand, during some episodes of recession, the resistance of several economic regions (Emilia Romagna in the mid-1970s and Veneto at the beginning of the 1990s) has been particularly pronounced, as they were supported by quite high rates of export growth; on the other hand, all the recovery phases received a fundamental contribution from the positive growth in exports. Concerning particular characteristics, in the mid-1970s the economic regions, except Veneto, were characterised by weakness in household consumption and a decline in investments; though the first of the two components started to recover in the first year after the recession, the recovery of the second was less rapid and more varied, for example in 1976 investments declined in Veneto but remained constant in Piemonte. The recession of the early 1980s for the Italian regions considered saw a decline in investments, as well as inconsistent exports and household consumption; the following recovery included exports and investment with rates of growth that sometimes favoured one region and sometimes another, while the recovery of consumption was more consistent from 1984 and most significant in Veneto and Emilia Romagna. In the early 1990s, as has been mentioned several times, the economic policies designed to strengthen the economy and public finances had a depressing impact on consumption and investment, but they further encouraged penetration of foreign markets thanks to the depreciation of the lira. The first years after 2000 were characterised by a reduction of exports in all Italian regions and by a less widespread decline in investment, but, where it occurred, it was more intense than that of exports; in the same period household consumption was stagnant in Veneto and Piemonte, while it grew in Lombardia and especially in Emilia Romagna. In 2004 the recovery involved household consumption, but growth rates reached no more than 0.9% for all the Italian regions; the recovery also involved investment and exports, but to varying degrees.
The purpose in this section is to observe the effects of the trend of GDP on employment in periods of crisis. In the four cycles examined employment elasticity compared to GDP (Note 12)
experienced significant changes. In the 1970-1976 period these indicators demonstrate their highest values in the United States, underlining a certain distance when compared to the other areas; in the following period the difference narrows and the figure for the German regions and Veneto figures are not far from those of the United States; from 1988-2000 employment elasticity in the United States is substantially in line with the elasticity in EU15 and the German regions, while both Italy and the Italian regions show very modest figures (in the case of Piemonte slightly negative); the most recent period, however, was characterised by an employment elasticity for Italy and its regions that was notably higher than that of other areas: indeed, employment grew on average more than GDP did. This result was due to measures introduced in Italy at the end of the 1990s to make the labour market more flexible and to encourage employment. In this regard the elasticity of the Italian labour market was particularly high in the 2000-2003 period, while in the following one the indicators demonstrate rather more modest figures and are such that the differences to the other areas examined are slightly less marked.
In the context of the current deep worldwide recession it is reasonable to expect particularly significant fallout for the Veneto economy: compared to Italy, the region has a greater sensitivity to external conditions (e.g. the trend of global demand, competitiveness of prices, etc.) which derive mainly from a degree of exposure to international markets that is higher than the national average. In parallel to the analysis it emerges that the economy of the region demonstrates a particularly rapid and effective responsiveness to crises. (Figure 1.2.4)
The flexibility of the production structure
The analysis of the business cycles now turns specifically to the sectors that make up the economic structure of Veneto, i.e. agriculture, industry and services, and then investigates the evolution of each individual sector.
The 1970-1976 cycle was characterised by a decline in the value added of all the sectors, which was particularly intense in industry (-6.4%), but also by a recovery pioneered by the development of industry in a strict sense. From 1976-1988 the total value added in Veneto remained positive, thanks especially to the contributions of services and construction and despite a decline in industry; in 1984, in any case, the economy of Veneto accelerated thanks to the performance of value added in industry.
The 1988-2000 cycle was characterised by a series of events between the end of the 1980s and the first half of the 1990s that were extremely significant (e.g. the reunification of Germany, the Balkan wars, the Gulf War). These events had a major influence on the development of the international economy, and the crisis struck the areas analysed to different degrees and at different times. In this period Veneto experienced a slowdown in GDP, not a decline: in particular, faced with stagnation in the value added of industry and a decline in that of construction, it experienced positive growth in agriculture and, especially, services.
In the last cycle, from 2000 till today, Veneto experienced a more intense decline than all the regions considered in 2002, one equal to -1% of GDP. In that year, there was a slump in the value added of the agricultural sector, and a more modest one in industry and services, while only construction demonstrated a positive trend. However, in 2004 Veneto experienced a larger increase in GDP than Italy and the other regions; industry increased after a three-year period of continuous decline and growth was comparable with that in services. For Veneto, 2004 was the peak of the cycle being analysed: the following years were characterised by a slowdown in 2005 and by more lively growth in 2006 and 2007, while the estimates for the 2008-2009 period indicate a growing decline in economic activity.
For a more detailed investigation of value added, a shift and share analysis has been carried out. This technique breaks down growth into components in order to measure the contributions of different factors of development, thus affording a better interpretation of the dynamics of the wealth produced.
The technique used allows three components to be isolated: the Growth Effect, Industry Mix Effect and Competitive Effect. The first measures the growth of value added for the entire area studied, that is of the nation; the second measures the contribution of the regional production specialisation, which is influenced by the presence of sectors in the area that grow more or less quickly. The third factor expresses the difference in growth between the region and the nation without the effects of the sectoral composition of the region, that is it measures the independent ability of the area to grow. It is given by a series of factors that are difficult to measure, by characteristics of the region tied to the spheres of technology, infrastructure and logistics, to the depth of the entrepreneurial culture of firms, and to the availability of raw materials. It is also measured by the specifics of the productivity of the area's labour force, or, in other words, the identity of the people of Veneto.
This type of analysis supplies therefore a new way of reading the growth of value added as it isolates the structural contributions of production specialisation from other local factors of development, i.e. those linked to the vitality of the territory itself. Indeed, the presence of favourable production specialisations, which are the most dynamic areas of an economy, forms an autonomous factor of progress and, at least conceptually, can be separated from intrinsic and competitive factors. (Figure 1.2.5)
The variation examined is that which occurred between 2006 and 1995, that is the last eleven years for which data is available from the official statistics for regional value added. The period saw a clear restructuring of the economy in its tertiary sector where many phenomena affected economic dynamics; the main one was the globalisation of markets, which saw new actors appear and an increase in the range of action by firms as a necessary factor for their success.
In this period the region that recorded the largest increase in total value added was Marche, with an increase of more than 60% over the eleven-year period. Veneto was also among the regions in which value added grew more than the national average, and by 2006 it had experienced a variation in value added of 56.6% compared to the 1995 figure. The regions that grew more than the national average also include Lazio, Campania and Sardegna, which were favoured by the contribution of the Industry Mix Effect to their growth in value added, i.e. they are the regions that were clearly affected by local production specialisations experiencing the most growth. This is explained, for Lazio, by the presence of an economy based predominantly on services including those connected to public administration; for the regions of the South, the greatest Industry Mix Effect is found, on the one hand, in the intensity of the growth of several parts of the tertiary sector such as tourism, and on the other in the modest presence of industrial manufacturing.
On the contrary, the Industry Mix Effect of production activities did not particularly favour Veneto, Marche, Lombardia and Toscana, regions held back by a structural composition based on Italy's traditional manufactured goods, which were shown to be less dynamic than others.
It should be noted that, for these four regions, including Veneto, the local component more than compensates for the above-mentioned considerations. Indeed these regions experienced quicker growth in value added than the national average; this demonstrates that they possess strong production systems, which have been able to maintain these regions at a well-consolidated and stable level of economic development over the years, thus providing a clear signal of their robust productivity.
The historical series was also divided in two parts to observe the possible changes in the trend. The study of the growth of regional value added, which took into account only the last five-year period, demonstrates a situation that can be more or less superimposed on that of the long term: the regions that grew faster than the national average are the same ones, plus Valle d'Aosta, which in the short term demonstrated greater acceleration than the other regions. The value added of Trentino from 2000 to 2006 grew slower than the average national increase, primarily because of its Competitive Effect, which in the short term made a negative contribution to the growth in value added. (Figure 1.2.6)
Looking into the structural composition of the production fabric of Veneto, business services, construction and transport not only have a consistent share of the total value added in constant prices, but are also among the sectors in which the aggregate examined grew the most between 1995 and 2006.
The value added in business services in 2006 was more than one fifth of regional value added, thus demonstrating its fundamental importance, which was due to its cross-sector nature and to its support for innovative development in the whole economy. Since 1995 business services have recorded positive annual variations in value added; although they underwent a brief decline in growth at the end of the 1990s and in 2004 and 2005, but they experienced a clear recovery in 2006, when the sector's value added was up 2.3% on the previous year.
Concerning the value added of real estate, a positive trend characterised the market from 2000 to 2002 and produced the longest growth in investment in the sector in the last thirty years. In the following years, however, growth was replaced by a slowdown, the first signs of which came in 2003 with the significant negative trend recorded in new non-residential construction. In the following years new residential construction was the protagonist of a clearly positive trend, and this growth has been able in recent years to compensate for the negative trend in the sectors in greatest difficulty, which were joined by public works and non-residential public construction.
The transport sector has reported positive annual variations since 1995, with a noteworthy increase in 2003: +14.4% on the previous year. The positive trend of the last decade came to an end with a negative variation in 2006, the year in which there was a slight decline in value added on the previous year's figure (-1.2%).
Mechanical products, optical and electronic products, plus vehicles, were the activities in industry in a strict sense that played a greater role in the creation of regional value added in 2006; the contractions experienced in the first years of the millennium made way after 2004 for the continuous development of the sector, with a fairly robust rate of increase. (Figure 1.2.7)
, (Figure 1.2.8)
, (Figure 1.2.9)
and (Figure 1.2.10)
Retail and wholesale trade accounted for a good share of Veneto's total value added at constant prices, but they did not have a particularly high level of growth over the course of the last five-year period. Generally, however, it was in line with average aggregate growth. Declines were recorded from 2004 to 2006 for value added in agriculture, forestry and fishing, in several subcategories of manufacturing, and in hotels and restaurants-the only tertiary sector. In the last two-year period studied the sectors of construction, financial services and transport grew rather rapidly; in the secondary sector, engineering and the food industry grew in particular, even though the latter continued to have a rather marginal share of all the activities that contribute to value added.