Declining propensity to save, high uncertainty, but also an economy that is showing significant resilience. The picture drawn by the governor of the Bank of Italy, Ignazio Visco, is in chiaroscuro. Confirmation also comes from the EU Commissioner for Economy, Paolo Gentiloni, who underlined how widespread the unknowns are in the eurozone. However, precisely by virtue of today’s quarterly GDP figure, + 0.5%, which beat analysts’ expectations, Visco needs to better calibrate the decisions of the European Central Bank (ECB). In his speech at the Day of Savings of the Association of Italian Savings Banks (Acri), Visco stressed that it is necessary to gradually make choices on interest rates. The risk, in the face of a deterioration in economic activity, is that of making “an excessively rapid step in the normalization of official rates disproportionate”.
The clouds around the Italian economy have not cleared, and they are not even mere haze. But at the same time, so far they have not produced thunderstorm showers. Governor Visco noted in particular that “in the current economic phase the trend in savings reflects contrasting pressures”. On the one hand, he “is supported by the precautionary response of families to the high uncertainty about the economic prospects”. On the other hand, he “is weakened by the attempt to maintain adequate levels of consumption in the face of the notable intensification of pressure on prices”. Flare-ups which, as Eurostat pointed out this morning, reached a record level of 10.7% in October in the euro area. In Italy, in line with the trends recorded in the other main euro area countries, Visco stressed that “the reduction in households’ propensity to save has continued since the second quarter of 2021, after the exceptional rise in the phase more acute than the pandemic, when it had risen with strong fluctuations from less than 10 percent at the end of 2019 to 18 percent in the first months of 2021 ». In the second quarter of this year, for all households (which includes “producer” ones), “the propensity to save stood at 11 per cent, down by about two percentage points compared to the last quarter of 2021 “. In absolute terms, the governor explained, “household savings approached 35 billion euros in the three months ending in June; even taking into account the increase in prices recorded by the consumption deflator, the level was still 13 per cent higher than the one before the outbreak of the pandemic (after having almost doubled in the months immediately following) ». In the first six months of this year, the reduction in real terms “just exceeded 16 per cent, affected by the increase in prices by more than 3 percentage points”.
The uncertainty is high. Specifically, according to Visco, “the risks on growth are oriented downwards and depend, not only for our country, as well as on geopolitical tensions, on the economic prospects in the United States, where, also due to the strong restriction of conditions monetary, many indicators assume a possible contraction of the product in the coming months ». Further negative repercussions could “derive from a possible sharp slowdown of the Chinese economy, mainly connected with the fragility of the construction sector, as well as from the persistence of inflation at high levels for longer than currently expected”.
The same themes were also touched upon by Gentiloni in his speech. “The uncertainty today is in some ways even higher than it was in the early stages of the pandemic,” he explained. Back then “it was essentially a question of ‘freezing’ our economies – and of supporting workers and businesses during this critical phase – until the improvement in the pandemic situation allowed the restrictions to be relaxed”. Today, however, for Gentiloni “we are faced with many more unknowns: the war in Ukraine, energy prices and stocks, inflation, interest rates, global supply chains and economic developments in China, just to mention the most important ones ». This is why among the indicators for assessing the economic trend developed by the European Commission “there is also an indicator of economic uncertainty, which has started to rise decisively in recent months”. Concerns weigh on businesses and households, which see a reduction in purchasing power and an erosion of wealth.
The picture remains difficult to read. All in all, according to Visco, “wage dynamics, in Italy and in the euro area in general, have so far remained moderate”. And it is for this reason that there is no “significant ‘un-anchoring’ of inflation expectations from the objective of price stability”. Therefore, it follows that the increase in official rates by the ECB “will have to continue to mitigate the risk that the persistence of high inflation caused by the succession of ‘supply’ shocks will translate on the expectations of households and businesses, fueling the dynamic of prices and leading to stronger increases in wages ». The rate of increase in rates and their point of arrival, however, “cannot be predetermined on the basis of pre-established projections or scenarios, which at this stage are of a purely indicative nature”. The high uncertainty, Visco warns, “requires proceeding gradually, carefully evaluating the adequacy of the monetary orientation on the basis of the evidence that will gradually become available”. Furthermore, “the danger that the deterioration of the economic outlook will turn out to be worse than expected, making an excessively rapid step in the normalization of official rates disproportionate should not be underestimated”. This is a risk that the Governing Council led by Christine Lagarde “will have to take into account in the coming months, as well as letting inflation remain excessively high for too long”. At the same time, the Council will have to “continue to carefully evaluate the effects of its decisions on financial stability”. In the December meeting we will see.
Crucial to getting out of today’s quicksand will be to make the best use of the packages introduced by the EU Commission, RePowerEU and NextGenerationEU. The straight bar on the National Recovery and Resilience Plans will be important. But it must be supported by citizens and businesses. “The funds deployed by programs such as NextGenerationEU will not be enough, alone, to bridge the investment gap for the ecological and digital transition and for energy security,” noted Gentiloni. Crucial, he said, will be “to be able to involve private savings as well, and this is one of the objectives of the project for a Union of Capital Markets”. This is because, as the ECB has pointed out several times, according to Gentiloni there is a need “for monetary and fiscal policies to find the right balance to contain inflationary pressures without excessively penalizing growth”. A message both to Frankfurt and to the European chancelleries. To prevent the current clouds from turning into a storm.