What is the effect on the cost of Italian imports of the recent increase in international energy prices but also of other raw materials and food products? This effect is equivalent to a greater “tax” that the Italian economy pays to the rest of the world and which, like any tax, generates a slowdown in economic activity. Considering a scenario in which prices remain at the level reached at the beginning of the invasion of Ukraine, in 2022 this increased tax would amount to approximately 66 billion (3.5 percent of 2022 GDP) compared to 2019. 57 billion (3 per cent of GDP in 2022) in a scenario of more moderate price increases.
The prices of raw materials and unprocessed food products have fluctuated sharply since 2019 (Fig. 1). After a decline during the initial phase of the pandemic, they then grew rapidly, with particularly strong peaks for hydrocarbons, especially natural gas (in Europe). What impact have these fluctuations had on our imports of raw materials?
The cost of the main imports of raw materials and unprocessed food is shown in Table 1.[1] These imports represented, in 2019, 16 per cent of total Italian imports. The latest Istat data (although still provisional) relate to 2020, a year in which imported volumes were particularly low (also compared to GDP) due to the recession from Covid-19 and the sharp fall in international trade. To estimate the expenditure for these imports in 2021 and 2022 we therefore started from 2019, increasing imports in that year due to the increase in prices (expressed in euros) which took place between 2019 and 2021-22.[2] Furthermore, it was taken into account that Italy’s real GDP in 2021 was still 3 per cent below the level of 2019, while in 2022 it is projected to be slightly above.[3]
The total cost incurred by Italy for the imports in question, after falling from 68.9 billion in 2019 to 46.9 billion in 2020, would have risen to 84 billion in 2021 (Table 1). In particular, gas imports in 2021 are estimated at around 22 billion, with an increase of 143 percent compared to 2020 and 56 percent compared to 2019.[4] In the same year, the value of oil imports (and derivative products) was slightly higher (35.8 billion), recovering the level of two years earlier: this is because the price of oil by 2021 had returned to pre-pandemic levels ( +62 percent compared to 2020).
For 2022, we have considered two scenarios. In the first, the prices of raw materials as of February 24, 2022 are considered, ie those of the day of the Russian attack on Ukraine (“conflict prices” scenario in Table 1). The second scenario considers a more modest increase that, on average in 2022, brings import prices to more contained levels, equal to the average between those of the “price conflict” scenario and those of the day before the outbreak of hostilities (scenario “prices medi “). The total cost of imports of the goods considered would further increase from 84 billion in 2021 to 135.2 billion in 2022 in the “price conflict” scenario and to 125.9 billion in the “average prices” scenario.
Focusing on the “price conflict” scenario, the additional spending for imports would be 66.4 billion compared to 2019 (3.5 per cent of GDP in 2022; Table 2, “price conflict” scenario). Of these, about 35 billion relate to natural gas and 16 billion to oil. The rest (about 15 billion) is mainly due to the increase in the price of aluminum, copper and cereals.
Analyzing the “average prices” scenario, however, the additional cost, again compared to 2019, would be around 57 billion (3 per cent of GDP in 2022). The 9 billion euros “saved” compared to the “conflict scenario” are almost entirely attributable to the different price of natural gas, whose future fluctuations will play a crucial role in determining the final amount of the implicit tax that Italy will pay to the rest of the country. world in 2022.
_______________________________________________________________________
Note
[1] For the values of imports from 2018 to 2020, the source is the Istat International Trade Yearbook 2021.
[2] For the monthly international prices of raw materials and food, the source is World Bank (last data of January 2022, with values then extended to February 2022 on the basis of the latest increases reported in the markets). Prices were converted from dollars to euros using the 2018-2022 annual average euro-dollar exchange rates published by Investing.com.
[3] The level of real GDP in 2022 remains particularly uncertain given recent geopolitical developments. We are using a real growth rate of 3.7% in the forecast compared to 2021.
[4] From the information available, long-term gas supply contracts are indexed, weighing the price of gas for one third and the price of oil for two thirds. Therefore, this indexation was taken into account and used for the purposes of the note.