Italy is technically out of its second recession in six years, but continues to "walk the razor's edge." The alarm was sounded by the Confindustria Study Centre, which today published its latest report on the economic scenarios. "The country has suffered a serious setback and has become more fragile, also on the social front", warns the CSC, underlining that Italy begins 2014 with "heavy damage, comparable only to that of a war".
Compared to 2007, total GDP decreased by 9,1% and per capita GDP by 11,5%, i.e. by 2.900 euros per person, returning to 1996 values. Industrial production decreased in physical terms by 24,6 %, at 1986 levels. Households cut consumption for seven weeks, or 5.037 euros on average per year. There are 7,3 million people who are totally or partially unemployed, twice the figure of six years ago. The poor also doubled, to 4,8 million. The recovery path, according to the economists of Confindustria, "will be slow and difficult: the reduced production capacity, affected by the prolonged fall in domestic demand, will represent a ballast in the recovery phase".
GDP 2013 -1,8%, BUT IN 2014 +0,7%
The Study Center revises downwards the GDP estimates for 2013 released in September. In the new scenario, a 1,8% drop in GDP is expected this year against the -1,6% previously calculated. The revision "comes from a cyclical variation of a tenth worse in the second quarter (-0,3% against -0,2%) and in the fourth (0,2% against 0,3%)". For 2014 the economists of Viale dell'Astronomia estimate an increase of 0,7% and 2015% in 1,2. Over the next year, the context will improve “thanks to a less restrictive fiscal policy and the acceleration of global trade, factors which will help to further increase confidence and thus fuel household and business spending; in 2015 the easing of the credit crunch will also intervene”.
However, “headwinds” are blowing on the economic recovery. If the credit crunch continues in 2015 and the weakness of the economy makes it necessary to maneuver by one point of GDP, in 2014 the GDP will rise by only 0,4% and in 2015 there will be zero growth. This far from abstract simulation, well known to many analysts of international investment banks, suggests that it is necessary to remove any internal cause of turbulence and uncertainty and quickly take decisions that will lift the country onto a higher growth path”.
DEFICIT-GDP 2014 AT 2,7%, DEBT STILL ON THE RISE
According to the CSC, the trend of the economy leads to the achievement of the public accounts target set for 2014 with a deficit of 2,7% of GDP, not that for 2015 (2,4%). Confirmed the figure at 3% for this year. The structural balance does not continue to approach balance (1% of GDP in two years), despite the large primary surplus (4,5% of GDP net of the cycle, half a point less than estimated three months ago). This result “was obtained by launching maneuvers for a total of 109 billion (6,9% of GDP) from 2009 onwards. Of which 3 points of higher revenues and 3,9 of lower expenses”. As for public debt, net of European support and in relation to GDP, it rose again in 2014 (to 129,8%) and then began to decline in 2015 (128,2%): "A decline entirely due to a homogenously distributed privatizations and disposals”.
CONSUMPTION, SHY RECOVERY SINCE 2014
Household spending, according to the Confindustria Study Center, is down by 2,5% this year and, for the first time in three years, will increase again by 0,2% in 2014, to then continue to rise again by 0,8% in 2015. The Csc explains that “the dynamics of consumption forecast for the next two years will be driven mainly by the easing of the restrictive effects of budget maneuvers (especially in 2015); by the drop in the cost of energy in 2014; by the continuation of the recovery of confidence; from the improvement in credit conditions as early as next year”. On the other hand, the need to rebuild precautionary savings and the weakness of the labor market will act as a brake. In 2015 the gap compared to 2007 levels will be -6,7%.
PRICES ARE BREAKING BUT NO DEFLATION
Consumer prices in Italy “slowed down markedly in 2013 – they still write from via dell'Astronomia -. The annual change fell to +0,7% in November (from +3,2% in September 2012). In the CSC scenario, price growth stabilizes and then records "a very gradual recovery over the next two years, in the wake of the restart of the Italian economy". The rise in VAT helps to "support prices in the coming year, held back however by the drop in the price of oil translated into euro". On average, the increase in consumer prices should amount to 1,3% in 2014 (from 1,2% in 2013) and 1,5% in 2015.
ASSUME THE PROTEST, AT RISK THE SOCIAL ESTATE
For Confindustria analysts, on Italy's difficult road to recovery "the greatest danger is the collapse of social stability", with the "rising of protest that is channeled towards representatives who preach the violation of the rules and the subversion of the institutions. It doesn't take much for events to take an unhappy turn". The fate of Italy "repeats itself, with the coagulation of important anti-system political groups".
MANEUVER, A MISSED OPPORTUNITY
The Stability law was "a missed opportunity" and its impact on growth will be "very small", argues the CSC, specifying that "the main proposed intervention is the one on the tax wedge, but the resources allocated are unable to have a significant impact". Italy needs “courageous reforms and industrial policies that outline a new era of economic and social reconstruction of the country – said the vice president of Confindustria with responsibility for the Study Centre, Fulvio Conti -. We, like Confindustria, have already been proposing a clear Project for Italy for a year with specific resources and lines of action to create a credible future for our country, focusing, not surprisingly, on our territories, our industries and our young talents”.
Attachments: The difficult recovery – Culture engine of development.pdf
