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Italy’s mechanical industry forecast to grow in 2016, but in slow motion

by Nicoletta Picchio

There’s a great deal of caution in making pronouncements on the state of Italy’s mechanical engineering industry in 2016. It’s true that production grew by 2.6% on average last year. But growth accelerated in the first half of the year, then slowed down in the second half. And that growth was mostly driven by the auto sector, which surged 27.8% from 2014.

Metallurgical and metal products are still in recession, down, respectively, 2.1%, and 3%.

“The decline we’ve observed is in line with situation of EU nations, in particular Germany, which, in the last quarter of 2015, registered a contraction of 1.3% from the same quarter the year before,” said Alberto Dal Poz, vice chairman of trade group Federmeccanica, presenting an annual economic overview of the sector.

“We are still in the tunnel, with some light, and many shadows,” said the director of the association, Stefano Franchi. “The figures from January confirm the significant weakness of the cycle, that had emerged in previous studies,” he said.

Expectations for production in the first quarter of 2016 don’t show any significant shifts. “There’s a general lack of confidence, there’s no recovery yet of internal demand, without which growth is impossible. No major industrial system can recovery without a domestic market,” said Dal Poz.

External factors, like financial turmoil emanating from China and Southeast Asia last year, and the performance of markets early this year, are also weighing on the sector.

“Production of engineering machinery and equipment, while it rose 1% for full-year 2015, showed a negative trend towards the end of the year resulting from a lower demand for related capital goods that started in the third quarter of 2015,” said Angelo Megaro, head of Federmeccanica’s research office.

The trend was evident in exports. They grew 4.3% on average in 2015, but showed a steady decline from quarter to quarter (from 5.8% growth in the first three months, to 2.5% growth in the fourth).

Exports to the US rose 21.8%, while exports to Russia and China fell, respectively, by 24% and 10.7%.

Using as a basis the pre-crisis peak (the first quarter of 2008), the level of production in Italy is still down 30%. France is down 21%, Germany 1.1%, and Spain 32.1%. But Spain is the only country that showed a steady increase in the latter part of 2015, thanks to car production.

“With the crisis, we lost 30% of our industrial production, 25% of productive capacity, and 300,000 jobs,” said Franchi (employment looks steady according to Federmeccanica’s outlook for the next six months). “We need to create the building blocks to ’reconstruct’ the sector, partly through a new national labor contract renewal for workers,” he said.