BMI View: The Italian economy will return to growth in 2015 after a three-year recession. We forecast real GDP to expand by 0.7% in 2015 and 1.1% in 2016. While we expect the economic outlook to improve significantly in 2015, severe structural challenges are still facing the Italian economy. According to our forecasts, Italy's economic output will remain well below pre-crisis levels over the medium-to-long term, as we forecast annual real GDP growth will barely break 1% over the next 10 years. With one of the highest household savings rates in Europe prior to the global economic crisis, and among the lowest private debt burdens, private consumption was not a strong driver of GDP growth in the past decade. We do not expect this trend to change, and forecast private consumption growth of 0.5% in 2015 and 0.8% in 2016.
Headline Industry Data (local currency)
2015 per capita food consumption = +0.1% year-on-year (y-o-y); compound annual growth rate (CAGR) 2014 to 2019 = +0.9%
2015 alcoholic drink value sales = +0.7%; CAGR 2014 to 2019 = +1.4%
2015 soft drink value sales = +0.4%; CAGR 2014 to 2019 = +1.9%
2015 mass grocery retail sales = +0.3%; CAGR 2014 to 2019 = +1.1%
Key Industry Trends And Developments
McCormick Completes Drogheria & Alimentari Purchase: In June 2015, US-based McCormick & Company concluded the acquisition of Italy-based spice producer Drogheria & Alimentari (D&A) in a deal worth EUR85mn (USD97mn). The acquisition agreement was signed by the firms in February 2015. D&A has around 120 employees and operates a manufacturing unit in Florence, Italy, where it produces spices and seasonings. The company generated about EUR50mn (USD54.64mn) in annual sales.
Gruppo Campari Performs Strongly In Q1 : In May 2015, Italy-based drinks producer Gruppo Campari posted a 72.9% year-on-year (y-o-y) increase in pre-tax profit as its brands performed strongly in their key markets. Profit totalled EUR35.8mn (USD40mn) in Q115, to end-March 2015, while sales increased 13.4% y-o-y to EUR327.4mn (USD368.05mn) during the same period. The company's operating profits surged 29.8% to EUR48.4mn (USD54.41mn), while in organic terms it rose 7.3%. The company reported strong sales growth in the Americas and Asia Pacific regions, with solid performances in Southern Europe, the Middle East and Africa. However, sales in North, Central and Eastern Europe saw a decrease of 0.1% in the period.
Discount Potential But No Structural Shift Ahead : Through to 2019, German discount retailers Aldi and Lidl will step up efforts to expand their presence in Italy, as part of a wider strategy in Western Europe. Earlier in 2015, Lidl - which has been operating in the country for more than twenty years - said it would invest EUR1bn over the next five years, while Aldi is considering entering the country. Aldi and Lidl are highly profitable in their German home market and have expanded successfully to other European markets, such as in the UK where they have taken market share away from traditional retailers. We see some potential for Aldi and Lidl to push further the discount retail segment in Italy, especially if they adapt their format to local preferences for fresh products. That said, the segment won't become as ubiquitous as in parts of continental Europe, such as Germany.
Key Risks To Outlook
The main risk to our forecast stems from the ongoing risk of a Greek default and potential exit from the eurozone. While we believe the eurozone is much better placed to handle such a scenario than it was four years ago given that the majority of Greek debt is now in the hands of public creditors, it would nonetheless have a major impact on confidence and lead to a significant spike in financial market volatility, stifling the recovery of bank credit.