“We have entered a new phase, characterized on the one hand by the increase in interest rates by the European central bank, which will increasingly inflate interest expenditure, while on the other, the various countries after two years of pandemic and almost one of crisis energy find themselves with a high level of debt“. So begins the 48th Quarterly Observatory on Italian economic data elaborated by Mazziero Research which analyzes different aspects of the Italian economy that despite everything “it is proving to be much more resilient than one might think”.
Public debt continues to decline
From July to September this year the Italian public debt has fallen, after reaching 2,743 billion in September. Now Mazziero Research estimates a slight increase in October to 2,747 billion, to then go back down until the end of the year, reaching a level between in the range of 2,701 and 2,726 billion euros.
However, Maurizio Mazziero estimates that the public debt “like every year” will rise again from January to almost certainly overcome the 2.8 trillion euros by June 2023.
Looking instead at the trend of the Debt/GDP ratio let’s see how the value would drop from 150.3% in 2021 to 145.4% of the current yeareven if from this point of view a decrease in the speed of reduction is estimated in the following years.
Mazziero Research observed a sharp increase in tax revenues in the first nine months of 2022, +37 billion euros compared to the same period of 2021; but despite this increase it returns to widening the difference between income and expenditure compared to the previous year.
With this in mind “two factors could further widen this gap: on the one hand, government interventions to deal with high energy costs and, on the other, growing spending on pensions and interest on debt”.
Government bonds: yields on the rise
In 2022 the amount of gross issues of government bondsapart from the month of September, they have been inferior compared to 2021 and in this sense the “lower budgetary needs, but also higher tax revenues“.
One aspect to pay attention to are the average yields of government bonds which have risen rapidly this yearapproaching for i 10-year BTP at 4%a level even exceeded for some issues.
From this point of view, as Mazziero observes, “the speed with which the yields on BOTs (blue line) increased, which went from a negative yield of almost half a percentage point to the current 2.5% in just six months”.
Central banks towards a slowdown in rate hikes
From the latest interventions by the various American central bankers and primarily from the words of the FED Chairman, Jerome Powell, it emerged that, after four consecutive increases from 0.75%, there could be a slowdown as early as the next meeting next week where an increase of 0.5% is now estimated.
From this point of view, the European Central Bank could also follow this line. “The BCE is in a somewhat awkward positionas it finds itself forced to fight high inflation, while at the same time trying not to slow down too much a European economy which has already been showing signs of a slowdown for some time“.
However, as Maurizio Mazziero observes, in recent months “the situation has partially improved with a euro that has already recovered almost 10% against the dollar from the lows reached in September” at 0.9536 and currently stands at 1.049.
As for the next meeting on December 15, according to Mazziero, “the ECB will be able to afford to raise rates by 0.5%, leaving however the possibility of a 75 basis point hike only if the Fed does so“.
In the graph below we see the level of interest rates of the various central banks, indicating with a dotted line the path that it is estimated they could follow.
The Fed is currently at 4% and ECB at 2%. In this sense, an increase of 50 basis points for both central banks would bring Fed rates to 4.5% and 2.5% for the ECB.
Trade balance still negative
The balance of the Italian trade balance has been negative for some time (December 2021), but after the value of almost 8 billion in August in September we witnessed one reduction to 6 billion.
In the graph below we can see the value of imports with the red histograms, while we have the value of exports in blue. From the graph we can see that exports still remain at a high level, while imports have started a decline starting in September.
According to Mazziero Research “the reason for this dynamic is to be found in the decrease in the prices of energy goods, which should also continue in the months of October and November”.
But not only that, it is interesting to note “that the negative trade balance did not excessively penalize the GDP trend“.
Italian GDP remains solid, the estimates are comforting
Istat has confirmed a Q3 GDP at 0.5%a value that would allow us, even with a zero change in the 4th quarter, one annual growth at 3.9%. Although in recent months we have had several fears of recession, but as Mazziero observes, “at the moment we have not yet had clear signs of a recession“.
According to Mazziero Research, “if we take the growth values of the 2nd and 3rd quarters of this year as a reference, we can find a solid economy that probably benefited both from the bonuses in the construction sector and from the partial reduction of energy costs”. However, these measures if on one side “they supported the activities, on the other they weighed on public finances”.
As for 2022”a 4th quarter with an increase of 0.3% would be enough to close the year with an increase of 4.0%; while an increase of 0.2% in the 2nd and 3rd quarters of 2023 would be sufficient to obtain an annual result of 0.8%”a value that corresponds to the estimate of Mazziero Research.
In the graph below we can see the quarterly trend of this year’s GDP and the estimate for 2023.
Labor market still strong
Good performance for the labor market continues to maintain good tone. In this sense, “since the beginning of the year, there have been just under 353,000 new jobs, while the number of unemployed has decreased by almost 238,000“.
Good news also on the inactive front, which decreased by over 60,000 in the month of October alone; while since the beginning of the year, inactive people have dropped by almost 230,000 units.