Country risk analysis for foreign businesses in Italy 2011

Résumé du document

This work presents a country risk analysis in a particular country that has been recently found at
center of Europe's economic crisis. Indeed, this country is Italy, which both economically and
politically, has undergone a period of worsening along the recent years. Although Italy has a fairly
low budget deficit, structural issues such as low productivity have resulted in an economic crisis.
In addition, its public debt at 118 percent of GDP, is one of the highest in Europe.

The objectives of this work are to provide recent, short but concise information on country's
economic performance and analyse the immediate outlook. Then all possible implications that
foreign investors should take into account when running their businesses in Italy are briefly set
out. In this part, valuable information regarding country's affected sectors, insolvency trends,
expected default value, payments delays, warning signs and bank lending restrictions is also
given.

As a consequence of conducting country risk analysis, third parties usually may consider to take
measures to avoid conducting their businesses under excessive country risk. As an example, the
actions to be taken by a multinational insurance company are presented. To end up, this work
provides background information with regard to sovereign spreads and credit default swap
development. In addition, there is a SWOT analysis, a simple but useful framework for analyzing
Italy's strengths and weaknesses, as well as the opportunities and threats that Italy will have to
face.

Extraits

[...] Further increase in payment delays is expected in 2012. Even during prosperous periods within the economic environment, many Italian companies with enough liquidity and / or bank credit lines tend to request their suppliers easy payment terms, just to optimize their cash management and avoid using the bank credit lines. This behavior, obviously, is stressed in times of economic difficulties. Consequently, it is very likely that, as happened in 2008-2009, delay in paying and payment restructuring will be seen from many companies. [...]

[...] In addition, its public debt at 118 percent of GDP, is one of the highest in Europe. The objectives of this work are to provide recent, short but concise information on country's economic performance and analyse the immediate outlook. Then all possible implications that foreign investors should take into account when running their businesses in italy are briefly set out. In this part, valuable information regarding country's affected sectors, insolvency trends, expected default value, payments delays, warning signs and bank lending restrictions is also given. [...]

[...] There is a higher risk in the case of small and medium purchasers / subcontractors (with a 6 Construction sector and materials / metals for construction turnover below 10 million euros) with weak financial profiles, many of which must cope with long payment periods of their customers and / or capital needs for large projects. Companies involved in real estate development (residential subsector) also show weaknesses due to current market constraints and lack of diversification of its business. Companies mainly working for ANAS (National Autonomous Roads Corporation) suffer from an average collection period (ACP) too long, also called Days Sales Outstanding (DSO). Many companies have reported losses in the last two years. [...]

[...] Monti's government is composed mainly of experts (teachers, bankers, businessmen), and not 11 politicians, and Monti himself has assumed the finance portfolio. The first task of the new government will consist in implementing the austerity measures adopted by the previous government of Berlusconi. Monti stressed that Italy must recover investors' confidence by its ability of reducing the high public debt and returning to a sustainable growth direction. Consequently, he has also announced further reforms which could include a review of the tax system, labor legislation and restoration of property taxes. [...]

[...] Unemployment is above and is expected to increase slightly in 2012. The participation rate in the labor market (i.e. in relation to the working population) is also low in comparison with the average in Europe. The consumer confidence has been sharply reduced and the Purchasing Managers Index (PMI) fell to 45 points, reinforcing predictions of a country sliding back into 5 recession. The current structural budget deficit is much more higher than the established by the Maastricht's criteria and it is expected that the level of public debt will exceed 120% next year. [...]