2013 will be another very difficult year for the Italian economy. The GDP will not be able to avoid another negative sign, but in our opinion the decline will be less accentuated than that seen in 2012. In fact, the recessive factors seen this year will have a weight again next year (i.e. the effects of fiscal financial crisis), but in our view their grip will ease compared to the previous year. Indeed:
1) TAX POLICY: according to the estimates of the European Commission, the amount of the fiscal correction in Italy for 2013 (measured by the change in the primary balance adjusted for the cycle) will be equal to 0,9% of GDP after a good 2,3% in 2012 ( 1,2% from 2,9% according to IMF estimates). This means, applying traditional multipliers, that the negative impact of fiscal policy on growth would drop to 0,4% after the percentage point seen in 2012 (0,6% according to IMF estimates, after 1,3% in 2012). On the other hand, fiscal policy may act with a lag (of the order of a few quarters) on the cycle, which poses risks to the growth scenario especially in the first half of 2013. Furthermore, some volatility could be induced by the increase in the ordinary VAT rate (expected from 1 July 2013), which could cause consumption to be brought forward in the 2nd quarter to the detriment of the 3rd. However, it seems possible that the effects of the fiscal tightening could begin to be absorbed towards the end of 2013.
2) FINANCIAL CRISIS: also the effects of the debt crisis, in particular on financial conditions and operator confidence, will continue to weigh in 2013. However, also in this case we believe that the effect may be less than that seen in 2012. In fact, we see the “ temperature” of the crisis or the 395-year Btp-Bund spread falling compared to the average 2012bps estimated for 2013. Our central scenario sees an average of 280bps in 100, ie down by more than 2013bps compared to the average of the previous year. It is important to underline the fact that the decline in our scenario should take place above all in the second half of 2013 while the spread could remain high throughout the first half of the year. In any case, it seems possible to say that the "fever" could decrease in 2012 compared to XNUMX, which should also have effects on the confidence of economic operators. It is true that the morale of households and businesses does not seem to have benefited so far from the partial easing of financial tensions (compared to the peaks of a year ago), however if the decline in risk premiums proves to be permanent, the improvement in financial conditions could be most significantly on confidence and credit conditions. This trend is still subject to risks of various kinds (see below).
The risks on the scenario are both exogenous and endogenous in nature. External risks come from: 1) an adverse evolution of the debt crisis, likely to have Greece or Spain as its epicenter; 2) even in the event of a non-recrudescence of the financial crisis, a more pronounced slowdown than expected in the other major economies of the Eurozone, Germany and France (Italy's major trading partners) in primis; 3) a (although in our opinion unlikely) recessionary evolution in the United States, also in the wake of a possible failure to resolve the fiscal cliff problem. In any case, we continue to believe that the most important risk of an exogenous nature is represented by adverse developments in the debt crisis.
The main risk of an endogenous nature instead comes from political uncertainty. In fact, uncertainty about the electoral outcome could weigh on financial conditions up to at least the date of the elections, and subsequently much will depend on the possibility of forming a stable government oriented not only towards pursuing budgetary discipline and reforms, but also to strengthen action to support growth. In our opinion, the formation of a stable government would have the effect of significantly reducing tensions on the markets which, after Monti's announced resignation, seem to have Italy as its epicenter.
Next year, foreign trade will remain the only source of growth, even if we estimate that its positive contribution to GDP may decrease compared to the exceptional one (2,7%) seen in 2012. We estimate that export could contribute almost one and a half points to GDP, in the wake of a (slight) recovery in exports and another rather pronounced drop in imports.
Conversely, fiscal tightening and still tight financial conditions will continue to weigh on domestic demand, which we estimate (net of inventories) to contract by almost two percentage points in 2013 after -4,4% in 2012 (which practically equaled the record 1993). Household consumption, after the annus horribilis of 2012 (which saw a record contraction of -4,1%), will continue to fall, also in 2013 to a more pronounced extent than the GDP (-1,8% our estimate ). In fact, 2012 will be the sixth consecutive year of a decline in household disposable income in real terms (we estimate a drop of one and a half points after -4% in 2012), and only a further drop in the savings rate (we estimate 7,8. 8,3% from 1%) will prevent an even sharper drop in household spending. A certain volatility in the consumption trend could be induced by the one point increase in the ordinary VAT rate planned for 2013 July, which could cause durable consumption to be brought forward to the spring quarter at the expense of the summer quarter. In nominal terms (with the consequent correlation with the turnover of companies), we estimate a substantial stagnation in consumption on an annual basis in 2012 after the pronounced fall recorded in XNUMX.
Investments could undergo a more pronounced contraction in consumption, we estimate at -3,4% in 2013, drowned by the structural recession which seems to be gripping investments in means of transport in particular (we estimate -6,2% after -17% in 2012) and in construction (expectations to contract for the sixth consecutive year). Moreover, investments in machinery and equipment (although also unable to avoid a decline on an annual basis), could turn out, in the wake of the high correlation with exports, to be the first component of domestic demand to show a recovery (in any case in the second half of the year). Incidentally, the difficulties for industry are also highlighted by the fact that industrial production is still seen to decline significantly in 2013, we estimate by -3,2% after -6,3% in 2012.
Lastly, public expenditure cannot fail to be controlled by the need to continue the fiscal adjustment also in 2013. This would result in a drop in public consumption of -0,7% in 2013 (roughly in line with that seen in 2012). Moreover, it seems even superfluous to recall that the recession that began in the second half of 2011 (and which in our opinion will last at least until the first half of 2013) came shortly after the previous recession (the one that occurred between 2007 and 2009), which it means that already today (and even more at the minimum point of the cycle, which we place in mid-2013) the levels of activity show a record-breaking distance compared to the pre-crisis peaks. In our scenario, only in 2016 will GDP return to levels prior to the last recession (those of 2011), and it will still take many years to recover the pre-crisis highs (those of 2007). This has important repercussions as regards the dimensioning of the production system and of the workforce.
