Real indicators
La normalization goes on. Here, enclosed in three words, is the summary of the economic situation as it appears and can be glimpsed in the now advanced spring. THE global recovery sprouts, identified and indicated by Lancet of March 2023, have not been burned since freezing (even ice burns!) of credit, improvident rather than sudden, which is not frozen, as will be explained later. Indeed, those shoots have strengthened and now have the appearance of new fronds. Which have developed together with the renewal of economic growth, and together they strengthen and make more effective resistance to adverse currents, such as the rise in the cost of money.
However, the words and concepts of «normality» and «equilibrium», which serve our mind to grasp ideas that represent portions of the world (not even the most relevant ones), should be put on the back burner in the economic analysis of reality. We found that not even in the universe there are absolute fixed points, but relative, and that even the sun moves with the other stars, in a sidereal dance. So that the revolutionary movements around it are not ellipses but elliptical spirals (on the eve of Sunday in Albis, or of Thomas, to believe to see , promising).
So what on earth can be normal or balanced on blue dot that we humans fret over? And if celestial physics is so "eventful", let alone that of the gods economic behaviors, dictated by conveniences no less than by impulses, by expectations no less than by calculations, by projections, even dreams, and visions. Rather, let's imagine ourselves continuing barycentric shifts, choral and asynchronous joint fluctuations, sudden air pockets and extrasystoles, high and low tides. With the awareness that some forces push supply and demand forward while others brake them, in variable times and ways because the conditions and the motivations that generate them count, their impact mass and the robustness of the social-bodies that receive them.
For example, a rate hike of 470 points in 13 months, as happened in the USA (the trend of FED funds and GDP in the graph), would have knocked out a bull if this had been towards the end of the bullfight, i.e. if the budgets of households and businesses had been full of debts due to a past spending overdose. In the past this is what happened. But in this round both actors were light-hearted and eager: light with accumulated financial loads and eager to resume the spending plans set aside due to force majeure in the health care.
The same goes for the skyrocketing cost of energy, which had multiplied 5-6 times, and is now down but remains 60% above 2019 levels. Here they are governments that have intervened to cushion the intensity of the blow and to diversify the sources. This intervention, emergency and hastily implemented (reactivity, as in medicine, is a lifesaver), and its positive results should silence all the people who at any time and anywhere think that governments should let go and let go, as in eighteenth-century aristocratic systems. And they should remember that they support the weak not only is it fair but it is also efficient, because it reduces unused resources and avoids that, in democratic systems, the measures for the competitive market are swept away by an electorate made fork by too much poverty in the midst of abundance.
And now, what is moving the economic systems in the direction of revival, again in spite of the incredulous Thomas? First let's look at this swing back to expansion. It is the tertiary sector what is now pulling strongly, and behind this pull are travel and the return to pre-pandemic life. This draft can be seen both in the orders and in the productive activity.
How is it possible that it still exists a lot of desire to travel, after the past year of "everyone away from home"? If data isn't an opinion, then globally travel was in 2022 by a third below the 2019 values, Also in Italy. The intriguing aspect is that it is not possible to know how much unexpressed desire to travel there is in the world (except for polls, which however are of little value because they are compared with a "normality" that nobody knows what it is anymore). Indeed, what we observe is theact of travelling, not the intention or desire. And there can be many gaps between this and that: for example, last year there were numerous obstacles in baggage handling, and flight cancellations due to staff shortages. Similar situations arise, to a lesser extent, today.
A great desire to travel, but the manufacturing industry struggles
Furthermore, certainly the number of people who traveled in 2022 was much lower than potential, coming from two years of frustrated intentions and plans gone up in smoke. With Chinese and Japanese still forced to stay locked up by a crude policy to contrast Covid. Microeconomically, the probability that a family/individual decides to travel is today much higher than the average. Macroeconomically, this drives the tourism sector, which has a high multiplier for some sectors in which Italy (the most coveted destination) has reputation and specialization, and which acts as a driving force for the recovery.
Conversely, the manufacturing effort more to regain traction either because a lot of demand has been vented there in the pandemic, or because a lot discretionary spending (durable and investment goods) has been more penalized by the lower purchasing power that inflation has inflicted on consumers and businesses, and lastly because the rise in the cost of money once again affects the purchases of those products more. Gradually, it will regain momentum also pulled by the technological and cultural revolutions (green and digital) in place. This means that we are only at the beginning of a new phase of expansion.
Especially since companies have continued and will continue to to hireto fill long-vacant posts. For example, it is interesting to note that in the USA the holiday rate in jobs it was 2019% higher at the end of 50 than the average of the previous twenty years; it is now falling from its 2022 peaks, but remains 100% higher than average. And the wage dynamics, taking into account the job restructuring, travels at 6,5% annualized in the first quarter of 2023, and has accelerated again.
All this validates the decision of the Monetary Fund to keep the global growth estimates for 2023 substantially unchanged (one decimal more for advanced economies, one decimal less for emerging economies), despite the fact that in the meantime there have been The crisis of the American Silicon Valley Bank (SVB) and the Swiss mess Credit Suisse/UBS. The shivers that ran through the synapses of the markets (which recalled the 2008 financial crisis which turned into a real crisis in 2009) derive essentially from the rapid transition from zero (or negative!) rates to levels not seen for three decades, with a series of tight increases concentrated over time.
THEtimely intervention of the monetary authorities has avoided the disastrous results of three decades ago, and today on it can be said that the 'banking crisis' – which even some continue to fear – is a paper tiger. Yes, there will be some more selectivity in lending, but not enough to significantly impact the real economy. Of course, there have been some 'beautiful souls' who have criticized 'timely intervention' because it encourages moral hazard. Criticize the bailout it's like saying that firefighters don't have to go and save a house on fire because people have to be taught not to smoke in bed…
The revisions of the Fund's 2023 estimates also concern theItaly, with a slight rise to 0,7%, while the Government gives 1%. These estimates could get even better. Italy and Spain are confirmed as locomotives of the Eurozone: for three years now the Italian economy has been growing more than the Eurozone average, breaking the bad habit of previous decades.
What is behind this Resilience? It is certainly too early to give credit, in terms of resilience, to the PNRR. Some credit must be given to the exporting companies, which have continued in their deeds, a sign of a profound restructuring induced by the crisis (indeed, by the crises, given that in recent years the 'black swans'); and a sign, also of an improved competitiveness/price, which is confirmed by our relative wage moderation: the Italian economy has been able to implement an 'internal devaluation' (the external one, not having its own currency, is no longer possible), with increases in labor costs and lower prices than competitors. And contributed the construction boom, son of the "highly criticized" superbonus (well beyond its demerits and without any extenuating circumstances for its merits; it comes to mind And don't they kill horses like that?).
Inflation
The bulletin on price conditions continues to indicate severe turbulence. Energy commodities have indeed dropped from the peaks of 2022, but remain much higher than pre-pandemic levels, thus continuing not to leave much room for discounts. This is especially true for the non-energy raw materials, where talking about downsizing appears very exaggerated.
Producer prices have calmed down, but this is due to energy, because otherwise they continue to advance at a pace incompatible with the objectives of monetary stability. Indeed, a rule of thumb says that the producer price index should be stagnant, productivity gains offsetting higher input prices, including labour. Today they are a few percentage points above zero.
La wage dynamics remains high. On the other hand, workers have excellent reasons for asking for higher wages: the cost of living has risen and continues to rise considerably, businesses are unable to find personnel because unemployment is at its lowest and employment (measured in absolute terms and in relation to working-age population) is at its highest. So, if the commodity work it is scarce…
the lovers ofESG, including the writers, will turn up their noses at an expression of ironworks capitalism, or of Marxist culture. But it is one thing to put the person at the center of corporate organizations, it is another thing to increase wages. The salary policies they must respect some obvious considerations, to avoid sending the company upside down and the workers themselves at home. Today these conditions are: there is a need to fill the gaps in the workforce to increase production and satisfy new and accumulated orders; to fill them it is necessary to increase wages; the high demand allows the higher wages to be unloaded on prices.
Watch out for inflation from labor costs, but also from profits
A good and known European central banker of Italian nationality recently warned that attention must be paid not only to labor cost inflation but also to allprofit inflation. Here it is: when demand allows prices to be raised to defend margins, otherwise eroded by wage increases, or even to widen margins, what should a central banker do, other than warn?
Moreover, everyone knows that many manufacturing companies, not having enough products to serve demand, have had a lot of raised prices and fattened profits. Others have suffered a lot. This, by the way, explains why shares have not fallen much in 2022 and are already back above their pre-war values. European ones are at historic highs. Well, ESG enthusiasts would say that income was produced and it's time to redeploy it.
Rates and currencies
Rates have fallen in both America and Europe: the T Bond at the beginning of last month it had exceeded 4%, and since then (i.e. since before the SVB crisis) it has lost more than half a point, and the yields of Waist e btp (with the spread little changed, thanks to the prudence of Giorgetti and Meloni on public finances); a descent, the latter, due more to empathy in the communicating vessels of the financial markets than torisk aversion (aversion which, if anything, was more justified in the American case than in the European one, where the banking surveillance is more efficient and stricter than the US one). That said, this drop in yields it is only temporary? Probably yes, given that inflation (see above) shows no signs of abating (we are talking about theinflation core), and the signs of wage pressure – for once, more evident in Europe than in America. It must be added, as mentioned above, thathomemade inflation not only remuneration but also (gross) profits are contributing, as evidenced by the GDP deflator. All this, coupled with the fact that economies are progressing despite the headwind of rising rates (ei real rates are all kept below zero), comforts the central banks in continuing theirs anti-inflation crusades.
Rather, it should be noted that yields, after falling in March, with the flight from risk triggered by SVB, have risen from the Atlantic on this side, while they have descended again (in comparison between the end of March and today) on the other side of the ocean. The markets clearly they expect the Fed to slow down or stop in the interest rate race (we'll see if these expectations are well placed), and indeed the news on the economic situation is a little better in Europe than in America, while, as far as inflation is concerned, even the signs of ongoing price pressures are stronger in Europe. Which also explains the weakness of the dollar: turns both the growth differential the expected rate differential.
And we come to the 'banking crisis': deserves the quotation marks for two reasons. First, because the SVB is not Lehman Brothers, and it didn't have trillions of dollars of toxic assets behind it, ready to spread their miasma on the world financial markets; second, because, after that humiliating experience fifteen years ago, when economies tripped over that slippery hinge that joins paper to sheet metal, the architecture of regulation was strengthened, and the monetary authorities learned their lesson. The fears of a banking crisis (always in quotation marks) that still hover are a Pavlovian reflection connected to that past affair. Certainly, in the wake of the pitiful cases of SVB, First Republic Bank, Credit Suisse…, many have been investigating other banks that are not in the odor of sanctity, and many crafts stress test revealed potential dangers. But there are no conditions to pass from potency to act.
In the currency field, we mentioned just above the dollar, which touched and surpassed the 1,10 level against euro. It is the highest level in a year now (but at the beginning of 2021 we were above 1,20), and the least that can be said is that, from the beginning of the pandemic to today exchange rate volatility increased quite a lot: as regards the exchange-prince of the markets – the €/$ – the difference between the maximum and the minimum was, in the quiet pre-pandemic year – the 2019 – a modest 4,8%. In the 2020, as Covid raged, it rose to 14,7%. In the 2021, addicted to Covid, dropped to 8,7%. But with the 2022, when the other 'black swan' of the Russian invasion of Ukraine popped up, it jumped to 18,2%! In the 2023 – we dare to prophesy – volatility will go down, but not to pre-Black Swan levels. The dollar – see above – it will continue to be weak.
Lo yuan it appreciated modestly against the dollar, but less than the euro, so that it depreciated against the single currency, to the lowest level since 2021. Top and heel, the (managed) exchange of the Chinese currency, pleases America by appreciating itself but refers to the Eurozone.
Le Bags they are in the 'waiting room', and they wander around, like anxious fathers in the delivery room, waiting to see what will decide the Fed on the rate path. They should be optimistic that the Fed will go "study the pace", as the Poet puts it, but on the other hand they are concerned - rightly so - that an economy that will only advance by1,6% (IMF forecast) does not bode well for the to evaluate. Among these opposite draws, the most probable path in the very short term (we dare not go further) is to vary little (apart from the usual Caveat emptor of geopolitical swans). This for America. In Europe there are different drafts: on the one hand, we are closer to the theater of war; on the other hand, the earnings warning is tempered by the better prospects for the real economy, which appear to compensate for a monetary policy of ECB who doesn't have many intentions of "studying the passage".
And thegold? Since the SVB bubo burst, the yellow metal has suddenly remembered that after all it had to justify the reputation of well shelter, and has risen to 2 thousand and more ($/ounce), touching up the records of 2020 (at the time the pandemic was in full swing). With the ebb of the anxieties of the banking crisis, and with the competition of rates on financial assets (it should be remembered that gold rates are zero point zero), it is to be expected that the quotations of this raw material from dental and ornamental habits it will return to its previous levels.
