Italian consumption under threat as ‘IMU’ tax kicks in

Two of the key risks which are keeping investors outside Italy are the lack of growth and the implementation of austerity measures which will start to take effect on Italians’ consumption patterns during the summer.

According to Nicola Marinelli, portfolio manager at Glendevon King asset management, austerity measures introduced by Italian prime minister Mario Monti, in particular through a new property tax called IMU, will impact middle class consumers, reducing as a consequence disposable income and investments.

“Concerns on the Italian market are quite strong at the moment. Across all our investment mandates, the maximum direct exposure to the country is 3%,” he said.

The 3% exposure includes investments made in neighbouring Southern European countries such as Portugal and Spain, which have seen strong investment outflows over the last months.

IMU reintroduced in Italy a tax on first homes. Previously known as ICI, the tax was terminated by former prime minister Silvio Berlusconi.

IMU also raised the fee on commercial holdings and vacation properties, and scraps deductions for landlords who offer rents below market rates.

The levy is expected to collect more than €10bn, but it will have a strong social impact, with strikes and cuts expected to reduce the country’s productivity.

“Elections also remain a strong risk. New elections could be called already in October or November, and this is likely to increase the spread between Btp and Bunds. Uncertainty on the political side is a strong risk,” Marinelli said.

Over the last months, investors have tried to reduce their exposure to the eurozone while remaining in Europe, Glendevon King said.

“Flows used to be from peripheral countries to the core. Now they are from euro countries to Scandinavia and the UK. The decision by the Swiss Central Bank to peg the Swiss franc to 1.2 euro has reduced safe-haven flows to Switzerland,” said Yannick Naud, portfolio manager at the same company.

Moreover, the definition of core Europe is changing. Naud added: “France used to be considered core Europe but this definition might have to be adapted over the next months. The public spending of the country is at 56% and its debt to GDP remains very high. The country could lose its ability to attract investments,” he said.


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