ITALY, the world’s ninth-biggest economy, relies mainly on services and manufacturing. The service sector accounts for almost three quarters of its GDP and employs around 65 per cent of the workforce.

Industry accounts for a quarter of GDP and employs around 30pc of the workforce. Manufacturing, which specialised in high-quality goods and mainly run by small- and medium-sized, mostly family-owned enterprises, is the most important sub-sector within the industry sector which plays an important role in the global market of luxury goods.

One of the most important pillars of the economy is the production of high-quality products such as in the machinery, textiles, industrial designs, alimentary and furniture sectors, which contribute substantially to the country’s exports.

Main exports are mechanical machinery and equipment, which account for around 24pc of total exports. Exports of clothing and footwear account for around 11pc. Other important exports include motor vehicles and luxury vehicles, electronic equipment and pharmaceutical products.

However, being poor in national resources, the country’s energy and manufacturing sectors are highly dependent on imports. Italy’s main imports are fuels, which account for around 17pc of total imports and make external position vulnerable to changes in import prices. Other imports include machinery, raw materials and food.

The country is a net food importer, as the small developing agriculture sector contributes just 5pc of GDP and employs around 4pc of the total workforce. The country suffers from political instability, economic stagnation and lack of structural reforms.

The economy faces a number of important challenges. A high unemployment rate highlights the weaknesses of the Italian labour market and growing global competition. The difficult status of the country’s public finances presents another challenge.

From 1961 to 1980, its economy grew at an average rate of 4.16pc, slightly behind Spain and significantly faster than France and Germany. Annual average economic growth slowed down to 2.4pc in 1980s and further to 1.6pc in 1990s. Thus, prior to 2008 financial crisis, the country was already idling in low gear, growing an average 1.2pc between 2001 and 2007.

Since the global financial crisis, the economy has continued to underperform. The global crisis had a deteriorating effect on the already fragile Italian economy. After shrinking by 1.1pc in 2008, the economy suffered 5.5pc contraction in 2009, the strongest drop in decades.

Since then, Italy has shown no clear trend of recovery. It did stage a moderate recovery with annual growth averaging 1.1pc in 2010-2011, but in 2012 and 2013 the growth again dipped to -2.4pc and -1.8pc. In the three years to 2016, GDP managed to record moderate annual average growth of 0.6pc.

However, the economy is showing signs of continued recovery this year. It is now in the fourth year of a moderate growth.

Driven by firm domestic demand and rising exports, the economy grew 1.8pc year-on-year in the third quarter of 2017, above 1.5pc in the previous quarter, marking the fastest growth rate since the first quarter of 2011.

Spain

SPAIN is the world’s 14th-largest economy by nominal GDP, but the fifth largest in Europe behind Germany, United Kingdom, Italy and France, and the fourth largest in the Eurozone.

It has a mixed capitalist economy. The economic growth remains fluctuated, hitting record growth of 5.7pc in 1987 and highest decline of 3.7pc in 2009.

Following the financial crisis of 2007-08, its economy plunged into recession, entering a cycle of negative macroeconomic performance. The economic boom of the 2000s was reversed, leaving over a quarter of Spain’s workforce unemployed. The Spanish GDP contracted by almost 9pc during the 2009-2013 period.

After registering 1.9pc decline on annual average basis during 2011-13, the economic situation started improving from 2014 onwards. In just two years (2014 and 2015), the Spanish economy had recovered 85pc of the GDP lost during the recession.

In 2015, the GDP grew 3.2pc, hitting the highest growth among larger European economies that year. By then, the country managed to reverse the record trade deficit which had built up during the boom years, attaining a trade surplus in 2013 after three decades of running a trade deficit.

The surplus kept strengthening during 2014 and 2015. With the country growing twice as fast as the Eurozone average, the GDP continued to grow by 3.3pc in 2016.

Spain, Europe’s fourth-largest economy, is now in its fourth year of expansion. Economic activity accelerated in the first half of this year, underpinned by private consumption and exports.

Growth is set to remain robust, but ease going forward, driven by a slowdown in private consumption.

Structural reforms have contributed to improved competitiveness and strong employment growth, but more effective labour market policies and re-skilling are needed to further reduce unemployment.

After accelerating from 8.2pc in 2008 to 26pc in 2013, Spain’s unemployment rate heavily decreased from 2014 onwards. Since 2014, the country has been registering steady annual fall in the official jobless figure. In 2016, unemployment rate decelerated to 19.6pc, the steepest fall on record to date. It is expected to contact further to 17pc in 2017.

Since Catalonia held a referendum on secession on Oct 1, an intensifying stand-off between the national government and Catalan representatives has sparked fears of social unrest.

Catalonia accounts for a fifth of Spain’s GDP. The wealthy region’s intention to break away after a referendum has plunged Spain into its worst political crisis. According to the government, the uncertainty around the Catalan situation will hurt the economy and employment.

Published in Dawn, The Business and Finance Weekly, December 4th, 2017