Italian fashion and textile industry faced with austerity measures

Austerity Plan be damned. After Greece, it was Italy that found itself in the crosshairs of rating agencies despite the 54.2 billion-euro plan adopted last Wednesday by the Parliament. The plan’s intended purpose was to reduce the country’s national debt (which was at 120% of the GDP) and to allay detractors. For the past three months, however, the country has suffered the wrath of the markets. Finally, Monday night Standard & Poor’s had cut Italy’s credit rating down from an A+ to an A and its short-term rating from an A-1+ to A-1.

Dolce&Gabbana show, Spring-Summer 2012 - Photo AFP

The agency states that the outlook for these ratings is negative and could decline further in the near future, explaining its decision by “the weakening of Italy’s growth prospects” and “the fragility of the ruling coalition and the political differences in parliament.” The economic context in which Milan will be hosting fashion week is, therefore, gloomy. Even before this announcement and the austerity plan, the country had experienced a decline in its business activity.

In the world of fashion and textiles, however, the rebound has been encouraging after a disastrous 2009 saw the sector’s revenues drop by 15.4% compared to 2008. In 2010, this sector marked a growth of 7.2% to almost 50 billion euros with exports thriving (10.4% compared to 2009), driven by its key markets: France (13.2%), Germany (+12.7%) and Spain (+8.1%), as well as Hong-Kong (+33.8%). This favorable trend was confirmed during the first quarter of 2011. According figures provided by Sistema Moda Italia, the federation representing the textile and fashion industry, revenues had increased by more than 5%, with overall performance in the sector on the rise.

Nevertheless, this trend and the sector’s positive balance of trade once again proved driven by international, rather than local, business. The level of consumption by Italian households had been a red-flag for a while. As it turns out, disciplinary measures, as opposed to measures that encourage consumption, have failed to bring about a resolution.

The international appeal of the Italian brands and craftsmanship cannot be denied, however, as noted by Raffaello Napoleone, managing director of Pitti Imagine, who reiterated the growing interest in Italian trade fairs such as Pitti and Milano Unica.

The manufacturing sector, however, which relies heavily on the export component will be be facing new obstacles. Spain, third largest importer of Italian textiles and fashion, and to a much lesser extent France, its main customer, are not far removed from the reprecussions of the markets and sovereign debt.

In addition, in the whirlwind of restructuring and reorganization, Italian leaders have abolished, on July 15th, the National Institute for Foreign Trade. “This will hinder the SMEs in this sector who confirmed international trade fairs being supported by the agency,” said Raffaello Napoleone. “These will be supported by ministries, but it will be less flexible than the Institute.”

The situation, hopes Napoleone, can be helped by “European governments working together in the coming months to overcome the difficulties associated with the sovereign debt crisis.” The latter will indeed have to act fast: following Standard and Poor’s, Italy’s rating could also be lowered by Moody’s in October.