The annual report “The economy of Lombardy” is presented today in Milan.
The macroeconomic framework and the economic situation
The phase of strong expansion of the economy following the pandemic crisis ended in 2023. According to our estimates, Lombardy’s product grew by 1.2 percent, a higher value than the national average (0.9 percent). The trend of the underlying components of the regional economy, captured by the coinciding Regiocoin-Lombardy indicator, shows that the slowdown began in the last quarter of 2022 and continued until the first quarter of 2024.
Inflation fell to 1.0 percent last March, from 11.0 percent at the end of 2022; the slowdown in price dynamics mainly reflected the decline in components linked to housing and utilities, which also incorporate the trend in energy costs.
Industrial production stagnated and company turnover decreased. Exports, valued at constant prices, fell, albeit to a limited extent and less than potential demand. The difficulties in supplying raw materials and intermediate products that had characterized the previous two years have been reduced. However, the ongoing crisis in the Red Sea has extended the delivery times of goods traded on the international markets that use this route.
In construction, activity continued to expand, still supported by incentives for energy efficiency interventions and by the works of the National Recovery and Resilience Plan (PNRR). The real estate market instead suffered a setback, with a sharp decrease in sales, which was affected by the increase in the cost of mortgages, and a slowdown in prices.
In private non-financial services, turnover continued to grow, particularly in the accommodation and catering activities which benefited from the good performance of tourism, especially from abroad.
In 2023, corporate profits remained high. Faced with the rise in interest rates, companies have reduced their debt to banks and used part of the liquid reserves accumulated during the pandemic to finance current activities and investments. Large companies continued to raise funds in the bond market. Companies have faced the weakening of the economic situation and the rise in interest rates starting from a more solid economic and financial situation compared to similar cyclical phases in the recent past. The solidity of the balance sheets was positively reflected in the indicators of the solvency of the debt towards intermediaries.
The number of employed people continued to grow and the labor market participation rate returned to 2019 values. The unemployment rate fell to historically low levels. Wages increased modestly compared to the increase in prices, although companies reported the intensification of difficulties in finding new staff.
Family income has decreased in real terms, due to the increase in prices; according to our estimates, 7.5 percent of Lombardy families were below the poverty threshold, a share slightly lower than the national average. Consumption, although slowing, continued to grow and spending was financed by drawing on the liquidity accumulated during the pandemic and, in part, by resorting to consumer credit. The financial position of families remained solid overall even though signs of increased difficulties emerged in meeting mortgage payment deadlines.
Investments by local authorities have increased, supported by the progressive implementation of interventions financed by the PNRR. At the end of 2023, over 13 billion euros had been allocated to public implementers for interventions to be carried out in Lombardy; the estimated amount of the tenders announced was around 6 billion euros, three quarters of which had already been awarded. A significant portion (4.8 billion euros) of the resources put out for tender concerns the construction of public works, a part of which is already in the execution phase: the construction sites connected to the PNRR started in the region between November 2021 and February 2024 were over two thousand, for a total amount of approximately 2.5 billion euros. In the same period, the completed construction sites were, in value, equal to 8 percent of those started, more than the Italian average.
The prospects
In the first months of 2024 the economic trend remained weak and the forecasts for the current year are for a further slowdown in the dynamics of the regional product (Prometeia), which represents approximately 23 percent of the national one. For the Italian economy, the central scenario of the Bank of Italy’s forecasts, published last April, envisages growth of 0.6 percent in 2024 and 1.0 percent in 2025. In the medium term, the development path of the region it will be traced by the ability to give continuity and accelerate the structural changes undertaken in the last decade and to address the problems of the three great transitions: climate, technological and demographic.
Almost two thirds of industrial companies in Lombardy have made or plan to make investments for energy efficiency and the use of renewable sources. The production capacity from renewable sources and their use by families and businesses have grown in the last fifteen years and Lombardy is the first Italian region for the production of electricity from water and photovoltaic sources. By 2030, to contribute to achieving the objectives of the National Integrated Energy and Climate Plan, the region’s electricity generation capacity from renewable sources should almost double.
Businesses continue to invest in new advanced technologies, especially in forms that facilitate process interconnections and remote access to information via cloud computing. The production structure centered on high-tech manufacturing and the strong international projection of the region make the ability to innovate and improve product quality a crucial factor for maintaining competitiveness. However, compared to the most advanced areas in Europe, Lombardy is characterized by lower investments in research and development and the lower use of highly qualified labour, even in the most technologically advanced sectors. These characteristics are accompanied by a lower propensity to introduce patent-protected innovations and a lower rate of entry into the market of new entrepreneurial initiatives.
Over half of the patented innovations can be traced back to multinational groups, which own only 4.2 percent of the production plants in the region, but which contribute significantly to the Lombardy economy: they employ over a quarter of the workers, generate almost half of the added value and contribute 60 percent to exports.
The progressive aging of the population will have very significant effects on the economy. There will be negative repercussions on levels of participation in the labor market. In recent years, the contribution of foreign workers has been crucial to the growth of the workforce and will continue to be so in the future. A contribution to employment could come from increasing the participation of women and young people who do not work or study. The demographic evolution will also have repercussions on the offer of financial services, which will have to adapt to the needs of older people, with levels of wealth on average higher than the average often invested in assets with a low degree of liquidity. The demand for personal care and assistance services will increase considerably.
The PNRR funds that finance investments in healthcare are mainly intended for strengthening local assistance. Once implemented, the envisaged measures will require a need for healthcare personnel additional to that determined by the retirement of a very high number of current workers in the sector: at the end of 2022, in fact, 11 percent of the employees of the Regional Health System had at least 60 years old.
