Judged by the unprecedented enthusiasm with which the Italian consumer launched into Christmas shopping this year, the overall economic forecast for 2001 has to be good. Government and independent market sources reported a 30 per cent boom in consumer spending in the run-up to the holiday.
In some countries, Christmas shopping would be an unreliable indicator. Not so in Italy where the canny consumer restricts domestic expenditure when the economic climate dictates. The point was not lost on Italy's Industry Minister Enrico Letta who said: "Consumer spending has gone up by 30 per cent. We haven't seen a rise like this for 10 years. This is proof that the economy is in good shape, thanks to sound policies and planning."
Independent analysis from organisations such as Confindustria, the Italian Confederation of Industry, and the OECD, the Organisation for Economic Co-Operation and Development, tend to agree with Mr Letta's positive assessment, albeit in a more cautious tone.
The combination of historically low interest rates and low inflation, created by Italy's massive squeeze on the taxpayer throughout the late 1990s to bring the economy into line with the celebrated convergence criteria for the start-up of the euro, has helped create a relatively buoyant economic environment. A predicted slowdown of the US economy and oil price rises notwithstanding, Italy's gross domestic product is set to improve on recent annual expansion rates of 1.5 per cent.
Depending on who you believe, Italy's GDP in 2001 will grow by 3 per cent (OECD in May), 2.8 per cent (current government target) or 2.7 per cent (Confindustria assessment in mid-December). All three figures represent a positive result for an economy which is still among the slowest-growing in the EU.
The new mood was partially underlined when Treasury Minister Vincenzo Visco unveiled a £16.7 billion (€21.2 billion) budget package of tax cuts and one-off public service salary bonuses in late September. Even though the opposition protested vigorously, claiming the budget was nothing less than a cheap pre-electoral gambit, Mr Visco stuck to his guns, arguing that his tax cuts were merely the "logical result" of the fiscal rigour that has marked the last five years of centre-left government.
To some extent, this is true. From 1992 to 1997, Italy embarked on a series of austerity budgets (greatly boosted when current European Commission President Romano Prodi came to office in May 1996) which saw the infamous annual deficit/GDP ratio reduced to 2.8 per cent from 9.8 per cent. The 2001 budget will, (at the latest estimate since it was still going through parliament before the holiday) reduce the deficit/GDP ratio to 1.5 per cent.
At least four considerations, however, spoil the otherwise positive initial impression of the Italian economy. First, unemployment remains high, recording a national average of 11.5 per cent but touching a widespread 23 per cent throughout Italy's under-developed Mezzogiorno, or south. Second, notwithstanding a wide range of privatisation initiatives in recent years, such as the autumn 1999 sale of the first tranche of state electricity company ENEL, the privatisation process is still hesitant, producing what the May OECD survey calls "evidence of deficient domestic competition". Not surprisingly, the OECD concludes that "the tempo of liberalisation needs to be increased".
Third, there is that familiar old chestnut, the Italian state pension system. The OECD survey claims that Italian state pension expenditure represents 15.3 per cent of GDP, making it one of the highest in the EU. Given the combination of early retirement provisions, increasing life expectancy and declining birth rate, argues the OECD, further radical structural reforms are necessary to avoid what it calls the "destabilising" of the system.
And that brings us to the fourth fly in the Italian ointment: 2001 is an election year. The most reliable indications suggest the centre-right coalition led by media magnate Silvio Berlusconi will win the general election due to be held next spring.
Given that Mr Berlusconi and his Forza Italia party are ideologically wedded to reducing the role of the state, then further fiscal easing can be expected. A victory for Mr Berlusconi could well represent good news for Italy's business community while at the same time - given the strictures of the EU's Stability and Growth pact - senior European partners are unlikely to be concerned that Italy will stop adhering to agreed EU fiscal targets.
An election victory for Mr Berlusconi, however, could still present a problem for Italy that manifests itself along essentially political lines. Some senior European partners may have reservations if not about Mr Berlusconi himself then about extremist elements in his major coalition partners, the ex-fascist Alleanza Nazionale and the Haider-sympathising Northern League.
Furthermore, if Mr Berlusconi sticks to his outlined government programme, then he could well be headed for the type of confrontation with the confederated trade union movement that contributed to his downfall in November 1994, after seven months in office.
Either way, anything less than an overwhelming Berlusconi electoral victory (at present, an emphatic win for the fractious left seems highly unlikely) could create a potentially unstable political landscape which, of course, would be bad for business.
