U.S. high-technology equipment should become more attractive as dollar continues to weaken against lira – Italy
ITALY This year Italy is not expected to lose any of the momentum of the economic recovery achieved in 1986. In fact, gross domestic product is expected to rise 3.5 percent, according to the official forecast.
Leading this growth will be a very strong rise in investment in machinery and equipment, forecast at over 9 percent, followed by 5 percent-plus anticipated growth in the volume of exports and in private consumption. Domestic demand is expected to increase at a faster pace than in 1986 and than output, with Italy’s high marginal propensity to import coming into play once again.
Although industry’s cash flow is at very healthy levels, the rate of increase of investment will be less than in the early years of the current economic recovery when industry concentrated heavily on laborsaving equipment. The increase in investment from 1986 to 1987 may fall slightly short of the officially forecast increase. Private consumption is officially projected to rise by a vigorous 3.2 percent, substantially above the 1986 rate, but below the forecast rate of GDP growth. Public consumption is expected to rise by 2.9 percent.
Looking at GDP by sector, higher-than-average growth is forecast in the service sector (3.6 percent). Value added in the industrial sector is expected to be substantially above that for 1986 and will be only slightly below the increase in real GDP, reflecting high levels of investment and the trend toward increasing capacity.
Foreign trade plays an increasingly important role in the Italian economy. When the final trade figures for 1986 are recorded, exports and imports of goods and services are expected to show a rise from 51.3 percent of GDP in 1985 to 53.1 percent.
Through the first eight months of 1986, imports (c.i.f.) of 99.3 trillion lire (down 10.3 percent from the same period in 1985) against exports (f.o.b.) of 95.8 trillion lire (up 2.1 percent from the same period in 1985) resulted in a trade deficit of 3.4 trillion lire. In comparison, the trade deficit for the same period in 1985 was 16.8 trillion lire. In the first seven months of 1986, the Italian trade surplus with the United States hit 3.8 trillion lire, with both imports and exports declining from the January-July 1985 period by 12.5 and 6.8 percent, respectively.
The composition of Italian exports, largely unchanged for the last 10 years, is, in order of importance: final consumer goods, semimanufactured products, investment goods, and energy and raw material exports. On the import side, energy sources, although having diminished steadily since their peak in 1981, still account for over one-quarter of imports. After energy-source imports, the next largest category in value terms is semimanufactured goods (25.2 percent), followed by consumer goods (21.9 percent), then capital goods (15.5 percent), and food and agricultural products (12 percent).
The direction of Italian trade has changed over the past 10 years, showing flexibility on the part of Italian exporters. Exports to the EC slipped from nearly half of total exports in 1976 to 46 percent by 1985 while exports to the rest of the OECD more than took up the slack, rising as a whole to 73 percent of the total in 1985. Over the 10-year period, exports to non-OPEC LCDs increased from 11 to 13 percent of the total while exports to OPEC decreased from 11 to 9 percent in 1985. Exports to OPEC had peaked at 17 percent of the total in 1981 following the second oil price shock. Exports to the U.S.S.R. have shrunk from 2 to 1 percent of total Italian exports while imports from that country have remained steady. On the import side, the EC still provides the largest share of total Italian imports (44 percent) while the rest of the OECD countries account for another 20 percent of total imports. The United States has long been Italy’s third most important trading partner. Over the 10 years to 1985, it has evolved (at 12 percent of total exports) into an export market close in size to that of France (14 percent) and West Germany (16 percent) and considerably larger than the OPEC market as a group.
As opposed to the export picture, import patterns have barely changed over the last 10 years. An exception is the share of imports coming from the OPEC countries, which dropped from 18 percent in 1976 to 15 percent in 1985. Over the same period, Germany maintained a healthy 17 percent share. The United States takes only 6 percent of the Italian market for imports. Since 1981 and the advent of the dollar’s appreciation, the United States’ status took on added significance–Italy’s single most important trade surplus is that with the United States. Although the dollar’s depreciation in 1986 will erode some of the trade surplus, preliminary data indicate the United States will retain its position.
The United States is most competitive with Italy’s other trading partners in high-technology equipment, systems, and services–areas in which Italians recognize superior American standards. U.S. businesses providing the highest technology, quality and reliability, and best service will find Italy a rewarding market in the products and services discussed in the following paragraphs. The U.S. dollar weakened against the lira by about 16 percent in the first 10 months of 1986, continuing its slide begun in 1985. U.S. goods thus are now significantly cheaper for the Italian purchaser than in the past few years.
The following product areas offer the best export prospects for U.S. firms.
Computer Hardware and Software: Italy trails other European countries in expenditures for EDP hardware (automated electronic equipment and data processing systems), but is catching up. Local production still cannot meet local demand, however, and the Italian market for imprted EDP hardware will grow at an estimated 14.3 percent through 1989. Mini-computers are in greatest demand. Demand for mainframe and large systems also is strong. U.S. EDP manufacturers enjoy an excellent reputation in Italy. Imports also play a major role in Italy’s software market, of which the United States holds the largest, and a growing, share (84 percent). Though Italian-produced software is becoming more competitive, U.S. and other imports will continue to find a most receptive market in Italy. The U.S. Commerce Department continues to sponsor EDP trade missions and exhibitions in Italy. These efforts often lead to licensing, agent/distributor and joint-venture agreements, as well as significant direct sales.
Energy Systems and Technology: Revisions made during 1985-86 of the Italian National Energy Plan (NEP) called for reducing dependency on petroleum. Particular attention is being given to planning of new coal-fired and nuclear power plants, though the latter are being reviewed following the Chernobyl accident. As this plan is implemented over the next three years, new investments by ENEL (the National electric Board) and upgrading of the national railway system are expected to sustain high demand for imported energy systems and technologies, as well as equipment. U.S. suppliers of hghly sophisticated, innovative products and services will find good marketing prospects for nuclear components, licenses and technical cooperation; coal-handling equipment; industrial and residential energy-saving equipment; and systems for exploitation of renewable sources of energy.
Telecommunications: Italy’s telecommunications sector is growing steadily, on the strength of increased expenditures and technical advances under the government’s 10-year (1982-92) National Telecommunications Plan. As Italian telecommunications (especially telephone) systems are modernized, Italy will need to import technologically advanced products in quantity and will look to the United States, the recognized leader in this field, as a principal supplier. Italian imports from the United States are expected to grow at about 12 percent through 1989, and the United States is expected to increase its market share.
Medical Equipment: The Italian market for medical equipment is expanding, especially in the high-tech fields of imaging, NMR scanners and other neurological equipment, digital radiology, and cardiology equipment. Unable to meet these needs from domestic sources, Italy will continue to rely on foreign suppliers offering state-of-the-art apparatus and the best aftersales service. U.S. medical equipment manufacturers can expect to compete well in the highest level technologies, especially as their products are now relatively cheaper following the decline in the dollar’s value.
Pollution Control Instrumentation, Systems, and Technology: Italian authorities are under increasing pressure to place more controls on polluting industries. Stricter enforcement of existing regulations, combined with new legislation to control air, water, and soil contamination, will induce private and public industries to install more pollution control devices, thus increasing the market size for such equipment in Italy. U.S. anti-pollution products were in second place among Italian imports last year, behing West Germany’s and just ahead of France’s. U.S. technological advantages and product innovation are appreciated in Italy, and American prices, until recently considered high, should now be more competitive with a weakened dollar.
Electronic Components: Italy does not possess the level of R&D or the industrial scale needed to meet the growing demand for many types of sophisticated electronic components. To satisfy this demand, Italy’s imports are expected to show an average annual growth rate of over 13 percent during 1987-89. Competition from European and Japanese sources is tough, but American companies can succeed in areas traditionally dominated by American technology, particularly the EDP and defense industries.
U.S. Financial Services: The rapid growth of Italy’s financial markets and the creation of new financial intermediaries provide opportunities for U.S. financial service companies. The government is now considering how to regulate this burgeoning industry, but should maintain a relatively open attitude toward U.S. firms. The gradual reduction in controls on investment abroad by Italians has opened additional opportunities to U.S. financial companies.
American investment in Italy continues to grow due to continuing economic growth, the improved financial health of many industrial firms, Italy’s strong entrepreneurial spirit, and confidence on the part of Italian investors themselves. Italy is politically stable, and its political and military relationship with the United States is close.
According to a 1985 study by the American Chamber of Commerce in Italy, the number of U.S.-owned companies in Italy has risen 20 percent since 1982. The number of American industrial companies has risen by 9.6 percent, commercial firms by 22.2 percent, and service companies by 39 percent. These American firms employ over 200,000 Italians and account for 6 percent of all Italian exports.
COPYRIGHT 1987 U.S. Government Printing Office
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