Business

Italy's Trade Surplus Due To Its Fashion Industry

Italian fashion revenues continue to outperform Italy's broader economy, and in the last part of 2016 and in the first quarter of 2017 they even picked up speed. That would already be good news in itself, but it is even more so because the textile and fashion industry is Italy's largest after machinery.

"If we consider the fashion system in the widest sense, including products such as eyewear, jewelry and cosmetics, in 2016 the turnover was close to Euro 84 billion," said Camera della Moda President Carlo Capasa at the Sole 24 Ore Luxury Summit. "Exports amounted to US$ 62 billion, creating a surplus of US$ 25 billion, half of Italy's total, which in 2016 recorded an absolute record. The fashion system, I will never stop repeating, promotes a positive image of Italy in the world and is an extraordinary economic engine."?

The January-February look positive, Capasa said. "The fall in the sales in United States has gone from -4.5% in 2016 to -0.2%, while China has rebounded from an -0.2% to a + 4.2%," he said. "Japan and Hong Kong are also good, with exports growing at 5.8% and 8.5%, respectively.

Exports from Italy to Russia are up 19.5%." Exports are what have been driving economic growth in Italy overall in recent years, and not just fashion, given the drop in domestic consumption. "The world crisis triggered in 2008 by Lehman Brothers collapse has put a strain on the fashion system, but today we look forward to the future with cautious optimism," said Claudio Marenzi, trade group Sistema Moda Italia president.

"Made in Italy continues to be appreciated in the growing countries, such as China and Korea in Asia. However, we cannot hide two problems: the slowdown in exports to the United States and the growth of tourist flows from China to Russia, to the detriment of Italy and France." Companies need to increase their presence on international markets and need to find capital to make it happen especially for medium-sized businesses, said Maurizio Castello of KPMG.

Boston Consulting Group chief Davide Consiglio focused on consumer segmentation, a strategic theme for luxury operators. This exercise is more statistical than intuitive, and is likely to become sterile unless a strategy is found that maximises the power of data. According to Davide Consiglio, the fashion and luxury industry must exploit the new opportunities for hyperpersonalisation offered by this super-charged segmentation.

"Growth in luxury will continue, but if between 2009 and 2013 it was 8.3% and between 2013 and 2016 3.8%, from 2023 we expect a + 2-3%. To keep up this pace, customisation is strategic: already 22% of luxury consumers consider this important when they make purchases, a percentage that is expected to increase in every country, and in particular among the Millennials, born after the 1980s."

UK is Made in Italy's fourth-largest market, worth more than China and Russia combined

While waiting for London to make any concrete moves, Italian companies' fears are purely hypothetical. But Brexit will be pivotal, as Great Britain is Made in Italy's fourth-largest export market: by itself, this market is worth as much as China (with Hong Kong) & Russia combined. Last year, exports across the English Channel generated a record Euro 22.5 billion for Italy: Euro 7.6 billion more than the depths to which they had sank in 2009. This record also boosted the trade surplus to its highest point ever, Euro 11.5 billion.

After a weak first half, there was an even stronger surge in sales during the second half of 2016. This acceleration has continued, with an annual increase of 4.6% in December and 7.5% in January. The potential risks were evaluated on a very wide range: last June, SACE estimated that sales could potentially drop by 7%, equal to roughly Euro 1.7 billion. At the moment, businesses consider that scenario very unlikely.

"The customs houses' theory," explains Federalimentare President Luigi Scordamaglia, "is a remote possibility, even though everything depends on the negotiations. Our associates are not particularly worried, partly because the depreciation of the pound appears to be under control, partly because many of our products are irreplaceable. No, I don't believe that UK can afford for trade to break down."

London is a fundamental client for Italian wines: according to figures from the agricultural cooperatives, Italy is their number one supplier. The Prosecco consortium cannot risk losing this market, as 36% of their foreign sales come from London. The pound's weakness, a visible worry for the wine sector, has also raised concerns for the textile/clothing sector. Last year, nearly Euro 3 billion of their products were sold in London.

Bad loans in Italy

The metals and textiles sectors are those with the highest share of bad loans in the Italian manufacturing industry, according to data from the Bank of Italy updated for January. Figures show that bad loans in the metals sector amounted to Euro 8.65 billion, slightly lower compared to the previous month. In the textiles and clothing sectors, bad loans totalled 4.895 billion Euros.