REAL INDICATORS
THEItalian economy improve in conjuncture. Or even in the structure? Of the first there is certainty, even if there is not enough awareness in the country: in the summer quarter the GDP of Italy it was 1,8% higher at the end of 2019, before the pandemic. Against +1,2% of France, +0,4% of Germany and -2,3% of the Spain. Me too'occupation it went beyond the values of the time, and by over 1,1 million: better than the broken promise written in the Contract with the Italians and signed on TV by Silvio Berlusconi. Same unemployed they have dropped by half a million, despite the fact that one million people have poured into the labor market. ChapeauMr Dragons!
It becomes interesting, and important for the future of the country, to understand whether this service is a one-off (a term sadly known to those who paid taxes in the 70s and 80s) or can continue. To understand it, you need to look at Potential GDP.
Yes, look: it's a word! Because, it must be confessed, potential GDP is a bit like thePhoenix: “That there is, everyone says it; where he is, no one knows” (Olinthus recites in Metastasio's «Demetrio» – but ours was referring to the faith of lovers…). Since we are dealing with a GDP in potential, and not in actuality, it can only be achieved with ponderosas econometric exercises, on which economists of various backgrounds practice with regularity.
What can be said is that, in the end, theact shapes power. That is, once it has been ascertained that a country is not growing, one can bet that economic science will conclude that the potential GDP has decreased. Likewise, when a country begins to grow again, potential GDP is also seen as rising. This is what the latest analysis of the has done with regard to Italy EU Commission, which sees a marked improvement, for today and for many tomorrows, of our potential GDP. And it's not just a matter of statistics, but especially of greater investment, in human and physical capital (or "metaphysical", such as software).
Comparing the GDP at constant prices of the Eurozone and Italy from the beginning of the century to today, it emerges that in first twenty years our GDP has not grown: indeed, at the end of 2020 it was lower than it was twenty years earlier (while economic activity in the Eurozone had grown by over 20%). But in the last seven quarters the positions reversed: Italy grew significantly more. Is this kidney shot a 'flame in the pan' or is there something more to it?
The EU Commission is optimistic. Indeed, since the post-pandemic recovery was not hindered by the need to respect the straitjackets of the Stability Pact (which was conveniently suspended), i motions of the soul entrepreneurial forces unfolded with particular vehemence, and the long process of restructuring the productive apparatus that had been maturing (even under the lash of the previous crises) was given the go-ahead. Also, the industrial relations they have fielded contracts that have earned Made in Italy precious points of competitiveness, and perhaps it is time for companies to do their part (by expanding the new contracts), above all to retain the young people who leave their homelands en masse.
Even politics, with a Draghi government authoritative and effective, he put his own into it. And for the future? Looking ahead, pink can be seen, as another deployment – that of the PNRR – could bring fuel to the continuation of the recovery. War and internal politics permitting. On the war in Ukraine predictions cannot be made: the stalemate is desperate but it is better than aescalation. On politics, the new government moves - for now - in the wake of Draghi. I hope…
It is a consolation to imagine that Italy can hold on better than before on its own feet, because the prospects for 2023 for the world economy appear very slim. The economy Number One, namely the USA, is facing a recession between the warm and the hard. Number two, that is China, will try to unravel the zero-Covid skein, but takes the risk of a great surge in infections which at the beginning can only slow it down; and then he has to resolve the real estate issue. and theeuro area is affected by multiple crises: energy, inflation, wages, real estate, financial (rising cost of money), shortage of manpower, automotive… In short, you are spoiled for choice when deciding which wolf of such herd will bite more. There are already signs of such collective weakness in the PMI indices production and orders.
Sure, on the other side there are the public and private investments to ride the two epochal transitions: energy and digital. Plus those of Big Pharma in biological treatments. And, consolation within the consolation, Italy boasts high skills in all these sectors, as has been argued in the July 9 hands last. In short, the Tricolor he can continue to wave garrulously, if the operators do not make serious mistakes.
INFLATION
The dynamics of consumer prices it started to slow down. More in the USA than in the Eurozone.
But it's premature to uncork sparkling wine (preferable drink not for sovereignty but because the Italian bubbles are now playing with the French ones). In fact, on the one hand the energy and food quotes they remain in tension, due to the well-known and sad war events.
On the other hand, the king of cost factors, namely the work remuneration, it is far from peaceful. And for a very simple reason: there is shortage of manpoweron both sides of the Atlantic.
We have already mentioned the high level of employment achieved in Italy, and this also applies to the other European economies. Also, there is major unionization in the Old Continent and the trade unions are extracting significant increases, in partial compensation for the bites inflicted by the high cost of living on family budgets. In Germany more than in Italy (see above). Instead, it is low unemployment and the very high demand for manpower that are pulling them up American wages, which continue to travel at a rate of at least a couple of points higher than the pre-pandemic ones, which were also accelerating as is appropriate when the Phillips curve returns to a negative slope.
These considerations suggest that the decline in inflation will be more gradual than the rise has been and that, to bring the price race back below the fateful threshold of 2%, it will be necessary to pass through the gauntlet of the recession. As often happens, to get better you have to get worse.
RATES AND CURRENCIES
"Data dependent": an expression, this one that is used in every statement of the Central banks. And a few timid hints of a return from inflationary pressures were enough to trigger other timid hints, by the Fed and the ECB, of a slowdown in the rate of ascent of interest rates. The rise is not from today and the fear is that the effects not yet manifested by past hikes (monetary tightening has lagged impacts) could lead to a severe recession. L'curve inversion in yields (two-year bond yields above those on 1960-year bonds) has preceded every recession in America since XNUMX. And this reversal has been evident in US data for months. But now it is also manifesting itself for the German Bunds.
Why is an inverted yield curve a sign of a looming recession? It can be explained in two ways. First: suppose investors, for whatever reason, they lose confidence and therefore bad times are expected for the economy. They then run to buy long bonds, which usually have higher rates than short ones, to ensure a decent yield for many years; not to mention the fact that alternative investing – in stocks – is not going to be so attractive in bad economic times. But in doing so, the value of long bonds increases and the yield falls, perhaps below that of shorter bonds, and the famous curve is inverted. The second possibility concerns the actions of the Central Bank: if it increases i taxi-guide and he promises the markets – with a ferocious attitude and a frown – that he will continue to increase them, short-term rates go up. Markets, of course, are not happy and fear these rate hikes will hurt the economy. In an economy in crisis, the demand for long-term funds drops, and therefore long rates drop.
All this in 'normal' situations (whatever this adjective means by now). But today we are not in normal situations. Let's try to think, for example, of what would happen if peace were announced in Ukraine tomorrow (it won't happen). One can be sure that all markets – stocks and bonds – would celebrate with festive price hikes. In short, in this cycle crowded with 'black swans', quotations, rates and prices are "like leaves on trees in autumn" ...
However, for now the markets seem to believe in a slowdown in inflationary pressures and a consequent slowdown in the pace of interest rates. But lower inflation would raise real rates. And so nominal long rates fall to avoid these hikes. Or they go down because the slowdown in inflation is due to one weak question and a recession drives rates down. Or they go down because the demand for long stocks increases due to the lack of attraction for equity investments (see above…). In short, they go down. How long?
Depends… At this point President Truman would have said he wanted the famous truncated economist, who cannot take refuge in the “on the one hand… on the other hand…”. But, at the cost of displeasing Truman, it is true that the path of interest rates depends on variables that are difficult to decipher: energy costs, the war in Ukraine and the behavior of central banks in their frantic recovery of credibility. On the nose, we would say that the worst on rates is over, and we will not revisit recent highs in yields. As long as inflation doesn't hit the tail.
On foreign exchange, the novelty this month lies in the strong recovery of the euro. In recent months, both a growth differential with the USA and a differential in nominal and real rates (T-Bond/Bund) weighed against the single currency. It is not clear whether the growth differential has changed much, apart from, perhaps, some signs of a 'less worse' of the European economy. And it is not clear whether interest rate differentials have also changed substantially. Perhaps the simplest explanation is that the dollar weakened because it ran too high before. And perhaps the Fed's caution on rates is also due to the fact that they are beginning to take into account (see a speech by Vice-President Lael Brainard) the damage that a (too) strong dollar causes to emerging countries.
For the chinese coin, the path of the exchange rate was approximately the same as that of the euro. The causes, however, are more clear. At first, the weakness of the yuan was due to the problems facing the Covid-zero was causing to the Celestial Empire, both economically and politically. The recovery is to be attributed, specularly, to the reverse on the zeroing of Covid: the protests, even in China, are useful for something…
I stock markets await. Last month we had the S&P500 fluctuating between 3900 and 4000. 30 days later, the S&P500… fluctuates between 3900 and 4000, and the markets, every other day, see the glass as half full (risk-on) or half empty (risk-off). We too are waiting, with the usual caveat: in the medium-long term, equity investment remains the most recommendable destination for the cash drawer.
Finally, a word on cryptocurrency. In last July's Lancette we wrote: «The last greedy havoc concerns a stablecoin, Earth, connected to a Moon…». And that's not all... The last accident, "a guise di maciulla" ("Inferno", XXXIV°), concerns the bankruptcy of the acclaimed FTX, founded by the young and impetuous (ex) billionaire Sam Bankman-Fried ("banking-fried”?). In the absence of rules, cryptocurrencies continue to claim victims, and we have no mercy for those who have lost money. If one invests in this gigantic Ponzi scheme (which doesn't even have the Pontian fig leaf of the postal coupons of the 5s), must be ready for anything. Well, all this has not stopped Davide Zanichelli, deputy of the XNUMX Star Movement, from creating a "Parliamentary Intergroup on Cryptocurrencies and Blockchain", which already sees the presence of about twenty parliamentarians. "We have to anticipate as a country system to take on a leading role in seizing the opportunity of a phenomenon, that of virtual currencies, which will inevitably impose itself on a global level", said ours, and adds: "Virtual currencies , also thanks to precise expedients, such as the open source source code, have managed to establish aspects of trust on the internet that characterize them as one of the currencies of the future, on a par with and no less than traditional currencies”.
Congratulations to the readers!
