The role has changed, the dove attitude has not. And so, as already repeated several times as a member of the ECB board, to his Fabio Panetta's first outing as governor of the Bank of Italy warns the Eurotower: interest rates are already at a level "sufficient to bring inflation back in line with the 2% objective", so we must avoid “unnecessary damage to economic activity”, he said while participating in the celebrations for the 60th anniversary of Iccrea, leader of the cooperative credit galaxy. And the data published by Istat and Eurostat seem to prove him right. According to estimates from the National Institute of Statistics, in fact, in November inflation fell to 0,8%, a value that has not been recorded since March 2021. Underlying inflation, the one most followed by the ECB, also continues to slow down (from +4,2% to +3,6%), while the inflation acquired for 2023 is equal to at +5,7%. Positive data also arrives in the euro zone, where in November the annual inflation rate reached 2,4% against estimates of 2,8%. In October it was 2,9%, in September it was 4,3%.
Panetta: “Be careful to avoid unnecessary damage to economic activity”
In his first speech as governor of the Bank of Italy, Panetta starts from the data published today: “The new considerable drop in inflation in the euro area” released today by Eurostat “is a good news", he claims. He then underlines: “The current level of interest rates would be sufficient to bring inflation back in line with the 2% objective”, provided, however, that rates remain at these levels for “the necessary time”, he warns, echoing the words already spoken by ECB President Christine Lagarde. The number one in via Nazionale, however, adds an important note: this necessary time “could be shorter” in the event that the weakness of the economy further accelerates the decline in inflation.
According to Panetta, in fact, “the transmission of monetary impulses to financing conditions is proving to be stronger than expected. It is necessary to avoid unnecessary damage to economic activity and risks to financial stability, which would end up putting price stability at risk."
The ECB budget
In the current economic-financial context we must not only consider rates. The current monetary correction “produces effects not only through the traditional maneuver on official rates, but also through a contraction of the Eurosystem balance sheet, which leads to a drop in liquidity in circulation", explains the Governor who warns of the risk of further indirect restrictive effects: "it is necessary proceed with caution in the normalization process of the Eurosystem's balance sheet".
The reference is above all to the end of the emergency government bond purchase program introduced during the pandemic, which the hawks would like to accelerate. According to Panetta, however, "The reduction in securities held by central banks will push the returns on financial assets upwards, with further restrictive effects." And precisely for this reason "After having raised official rates to a level that will allow price stability to be regained, a sharp contraction of the Eurosystem's balance sheet - after the already rapid one of recent months - would have restrictive effects on the economy that would not be justified from inflation prospects"
Panetta: “Growth below 1% also in 2024
From Europe to Italy. After the recovery recorded in the aftermath of the pandemic, “the Italian economy is in a phase of stagnation, like the European one. According to available forecasts, production activity should accelerate in the coming months; in 2024 growth would remain below 1 percent“, anticipated the Governor.
“The recovery of investments is a sign of confidence in the prospects of our economy which must be supported and strengthened by directing resources towards projects capable of raising development potential”, states the number one on Via Nazionale, but “that Italy has a structural growth problem is known, as are the causes of the problem." “The relaunch of the Italian economy – he continues – follows a path that goes from investments to productivity and therefore to growth. Given the demographic prospects, employment will be able to make at most no contribution to economic activity, even in favorable scenarios. Growth will therefore depend on the ability to aincrease the product per unit of work".
The recipe for accelerating growth also involvesexpansion of the audience of innovative companies and dynamics, encouraging the diffusion of technology among other companies. “It is an ambitious objective, which in addition to investments requires the valorisation of human resources. It is necessary to concentrate, with perseverance, public policies and the commitment of the entire production and financial system, which in these difficult years has shown resistance and a capacity for recovery on which to build to give strength to the growth of the Italian economy", he concludes .
Panetta on Italy: “Debt has been oppressing the economy for too many years”
Il burden of debt “it has oppressed the Italian economy for too many years. We must free ourselves from it by avoiding the mistakes of the past, acting both on the public finance and growth fronts. This is not an easy task, to be faced keeping in mind the need to continue the commitment to relaunching the economy of the South", said Panetta, according to whom reducing debt in relation to product is a priority because "it takes resources away from anti-cyclical policies, social interventions and measures in favor of development; increases the cost of financing for private companies, reducing their competitiveness and the incentive to invest and makes the country "vulnerable to erratic movements in financial markets".
