Finance & economics | Italy’s regional divide

A tale of two economies

As the north limps ahead, the south swoons

|CATANIA

AFTER three years of recession, Italy’s economy actually grew in the first three months of the year, by 0.3% compared with the previous quarter. It is forecast to grow by 0.7% over the year as a whole, boosted by a weak euro, cheap oil, the European Central Bank’s bond-buying programme and a reform-minded government. That looks good compared with the country’s grim recent record: between 2001 and 2013 GDP shrank by 0.2%.

INTERACTIVE: See more measures compared across all European countries here

National economic data always mask regional differences. In Italy, however, they disguise a divide that is deeper than normal (see charts). The country is, in effect, made up of two economies. Take that 2001-13 stagnation. In that period northern and central Italy grew by a slightly less miserable 2%. The economy of the south, meanwhile, atrophied by 7%.

This is partly because the south grew more slowly than the north before the financial crisis. But the main source of the divergence has been the south’s disastrous performance since then: its economy contracted almost twice as fast as the north’s in 2008-13—by 13% compared with 7%. The mezzogiorno—eight southern regions including the islands of Sardinia and Sicily—has suffered sustained economic contraction for the past seven years. Unicredit, Italy’s biggest bank, expects it to continue this year. The Italian economy is both weaker and stronger than it appears, depending on the part of the country in question.

Of the 943,000 Italians who became unemployed between 2007 and 2014, 70% were southerners. Italy’s aggregate workforce contracted by 4% over that time; the south’s, by 10.7%. Employment in the south is lower than in any country in the European Union, at 40%; in the north, it is 64%. Female employment in southern Italy is just 33%, compared with 50% nationally; that makes Greece, at 43%, look good. Unemployment last year was 21.7% in the south, compared with 13.6% nationally. The share of northern and southern families living in absolute poverty grew from 3.3% and 5.8% respectively in 2007, to 5.8% and 12.6% in 2013.

Downward pressure on demand is exacerbated by the south’s lower birth rate and emigration northward and abroad. The average southern woman has 1.4 children, down from 2.2 in 1980. In the north, fertility has actually increased, from 1.4 in 1980 to 1.5 now. Net migration from south to north between 2001 and 2013 was more than 700,000 people, 70% of whom were aged between 15 and 34; more than a quarter were graduates. Marco Zigon of Getra, a Neapolitan manufacturer of electric transformers, says finding engineers in Naples, or ones willing to move there, is becoming ever harder. According to Istat, Italy’s statistical body, over the next 50 years the south could lose 4.2m residents, a fifth of its population, to the north or abroad.

These demographic trends have tempered the gap in GDP per person with the north, according to SVIMEZ, an association for the development of the mezzogiorno. But the loss of human capital, coupled with low investment in the physical sort, is sucking the region dry of the resources it needs to recover. Investment in the north shrank by a quarter between 2008 and 2013; in the south it fell by a third.

These problems are not new, nor are they uniquely southern. But they are more virulent than the economic afflictions that sap growth in the north of Italy. Crumbling infrastructure is a good example. Mr Zigon complains that the port of Naples has fallen into disrepair, hampering Getra’s exports. In April part of the main highway across Sicily collapsed due to a landslide, almost doubling the time it takes to get from one end of the island to the other. Fixing it could take years. Railways in the south include Italy’s oldest, opened in 1839.

INTERACTIVE: See where north and south Italy rank in relation to other European countries

Most of Italy lags behind Europe in terms of digital infrastructure, but the south is especially backward. The same is true of civil justice and the bureaucracy, both of which are generally slower in the south. Corruption is common enough in the north, says Antonio La Spina of LUISS university in Rome, but it is more diffuse in the south, even if sums involved tend to be smaller. That makes it harder to root out.

Buoyant exports and cheaper credit have helped Italy’s economy revive in recent months. But these effects are more muted down south. The region accounts for just over a tenth of Italy’s annual exports of €400 billion ($450 billion), and much of that goes to other European countries. Whereas exports from the north grew by 2.9% last year, those from the south shrank by 4.7%, partly because the low price of oil dampened revenues at Sicilian and Sardinian refineries. Loans are often harder to get and more expensive in the south, thanks to the high rates of delinquency and bankruptcy that prevailed during the crisis.

Regional divides are common in many countries, says Gianni Toniolo, an economic historian at LUISS, but Italy’s case is peculiar because of its longevity. The gulf between east and west Germany was much wider than that between northern and southern Italy in the 1990s; now it is smaller. If Italy’s economy is to grow anywhere near as fast as that of the euro zone’s powerhouse, it will have to find some way to narrow its internal divisions.

This article appeared in the Finance & economics section of the print edition under the headline "A tale of two economies"

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