Despite the slowdown expected in the fourth quarter, le perspectives for the performance of the recovery in Italy remain good. However, the unknown factor of the virus hovers over everything, with the possible new limitations necessary to counter the spread of the Omicron variant. However, Italy appears to be among the countries best positioned in the fight against Covid-19. These are the ten risk and opportunity factors that will direct the next three years of the Italian economy in one direction or another, analyzed by the forecast report by Prometeia.
The brisk pace of recovery
In 3° trimester of the year there was an increase of Pil of 2,6% on the previous quarter, + 3.8% compared to a year earlier. Growth due to the further recovery in household spending (+ 3% on the previous quarter), in particular in services (+ 8%) with the end of the lockdowns and favored by the tourist season. Also noteworthy is the excellent stability of investments in capital goods, which with + 4.5% have now recovered to pre-crisis levels. Investments in construction are on the rise, which are gaining momentum after the push of tax incentives. The export performance was good, confirming the health of the sector despite the difficulties in the supply chains.
The slowdown on the way
The 3rd quarter allows you to look at the winter months with confidence. However, a slowdown is evident growth: cyclical information points to a flattening of the cycle starting from the summer, already reflected in the monthly indices of industrial production which have stopped on average since July, which however seems to have had a slight turnaround in November. Prometeia estimates that Italy will close 2021 up by 6.3% and 2022 by 4%, and then continue to grow at rates higher than before the crisis and the Eurozone average (+ 2% in 2024).
The good health of the manufacturer
In terms of production industrial, Italy is the only one of the big four in the euro area to have recovered to pre-crisis levels. The Italian performance depends on two different factors. The first is the production of means of transport: a different positioning of the range among the countries, which leads the Italian industry to suffer less from the ecological transition and the shortage of semiconductors. The second is the driving force of exports, of the food sector, in which Italy holds a comparative advantage and which was less favored during the pandemic, and of the supply chain activated by construction. Prometeia believes that these strengths will continue to protect our manufacturing from bottlenecks in the supply of materials and expensive energy, as long as the turmoil does not last too long beyond next spring. The industrial production index will reach + 11% in 2021 and then settle at + 2.4% in 2022.
The restart of the supply chains
With reference to commodity e semi-finished products, the available signals show an improvement which, associated with the lower Italian exposure, would allow the country to regain full operations within a few months. Information from the European Commission also seems to indicate a situation of less tension in Italy than in other countries. However, the further away from normalization, the greater the risk that Italian manufacturing will also have to slow down.
The duration of inflation
L’inflation she has arrived. It is a question of cost inflation: the restart of post-lockdown demand encountered supply bottlenecks so that prices, associated with the unavailability of many semi-finished products, caused many production costs to rise. This increase is partly being discharged downstream but which is still largely absorbed by company margins. Years of low inflation have made operators, consumers in particular but not limited to, reluctant to accept price increases, and producers have learned to privilege maintaining customer relationships and investing in quality. This is what continues to happen and companies, on average, are able to withstand this impact, because they are well capitalized and with still strong profits. If by next summer the situation in supply chains will normalize both in terms of prices and that of the availability of goods, the damage to the recovery will be contained and companies will be able to benefit from the progress of global demand. Prometeia estimates inflation in Italy at 1.8% in 2021 which the following year should rise to 2.1% and then fall back to 1.6% in 2024.
The tightening of monetary policies
the monetary policiesHowever, especially in the United States, they are in a difficult position. Are we in danger of revising stagflation – the combination of high price dynamics and weak economic activity – as a result of the supply shocks caused by the pandemic? Prometeia is still convinced that this will not happen and expects increases in the target rate on Fed funds up to the range 0.75-1% at the end of 2022 and that the ECB will continue to reduce the purchase of securities and postpone the first increase in interest rates to 2023. policy. However, monetary policy is not particularly effective against supply-reducing shocks. Furthermore, it is still expansionary, real interest rates remain in broadly negative territory in both the US and Europe. It cannot therefore be ruled out that inflation will be more persistent and that central banks will have to intervene more aggressively than is currently expected, with more restrictive effects on activity.
Household savings
The economic growth it will also depend on the speed with which the families they will regain confidence and bring the propensity to consume back to pre-crisis levels. The propensity to save has greatly increased (even over 20%) and, even if the phenomenon is diminishing, we are still far from pre-crisis levels. Prometeia assumes that these levels will be recovered only at the end of the horizon of this forecast to 2024 and that the accumulated savings will not be divested. If households regain confidence in the economic outlook faster and inflation does not erode their purchasing power, the recovery could be even greater.
The expansionary fiscal policy
The recovery of propensity to consumption will be supported by a policy budget that will remain expansive, even if most of the exceptional interventions will fail. The Budget Law currently being approved provides for an increase in net debt (1.3 percentage points per year in the three-year period 2022-2024). The government has privileged support for growth, postponing the consolidation of the accounts to the years after 2024. The return of the debt / GDP after the increase of more than 20 points in 2020 remains the critical point: the government’s goal is to return to pre-crisis levels in 2030. Prometeia estimates a debt / GDP reduction of 152.6% and 146.4% in 2024 for 2021. A path that could struggle to combine with European budget rules in the current configuration.
The extra weapon: the PNRR
L’Italy is among the major beneficiaries of the funds of geu and the use it will make of it will be crucial to guide growth not only between now and 2026, the period of validity of the plan, but also beyond. Between now and 2024 Prometeia estimates the growth impulse of the investments envisaged by the PNRR at approximately 0.4 percentage points each year. The plan represents an opportunity to simultaneously relaunch productivity and potential growth in a greener and more supportive direction. If this possibility is not grasped, the risk of continuing on the path of the past decades of decline and separation from the main European partners will become tangible.
Political stability
Last but not least, I will have a big impact on growth there stability policy, one of the conditions for the implementation of the PNRR to continue rapidly on its path. The next institutional deadlines will be an important step to understand if and how the current equilibrium will change. Signs of a lack of political determination to govern the process risk being immediately sanctioned by investors and reflected in a widening of the spread paid by our sovereign bonds compared to German ones. In the base scenario, Prometeia expects a BTP-Bund spread that is in any case stable between 120 and 130 basis points in 2022.