Bank of Italy decisively cuts its 2014 GDP estimates, however improving its forecasts for 2015. This year, according to the central bank's economic bulletin, growth will be only 0,2% and "with downside risks", while in January estimates still spoke of a +0,7%. In 2015, however, the GDP should increase by 1,3%, an improvement on the +1% expected at the beginning of the year.
“The unfavorable trend in the first part of 2014 – explained Via Nazionale – led to a reduction in the estimates, while the assessments for 2015 are more favourable, mainly reflecting the more expansive orientation of the monetary policy. The gradual return to growth presupposes a favorable trend in international trade and a strengthening of domestic demand, in particular of investments, which would contribute to the weakening of the restrictive effects of the budgetary adjustment of previous years, the lessening of uncertainty, the further alleviation of financial tensions. Domestic demand should also benefit from the measures to support lower labor incomes and the payments of commercial debts by the public administration".
THE RECOVERY IS SLOWING, PILOTS STAGNANT EVEN IN THE SECOND QUARTER
The Bank of Italy also underlines that "considerable elements of fragility remain in the prospects for recovery, also due to the uncertainty regarding the evolution of the current geopolitical tensions and their transmission to world trade". In short, in Italy growth "is struggling to recover and the information available suggests a substantial stagnation of activity also in the second quarter", after -0,1% in the January-March period compared to the last three months of 2013.
Palazzo Koch argues by explaining that “economic activity in the winter months was affected by the decline in energy production, partly linked to climatic factors, and by the persistent weakness in the building sector. In May, industrial production suffered an unexpected drop, common to the euro area, partly attributable to calendar effects. Foreign demand would have increased again in the face of the weakness of the domestic one. Consumer assessments of the country's economic situation have clearly improved since February; those on personal conditions however remain cautious, conditioned by the still uncertain evolution of employment”.
STOP EMPLOYMENT DECLINE, BUT MORE UNEMPLOYED AMONG YOUNG PEOPLE
On the employment front, according to Bank of Italy "the decline in employment, which has been underway since the second half of 2012, stopped at the beginning of the year", but "the number of unemployed has increased further, mainly in the long-term component and in the juvenile one. The improvement of the framework would only gradually impact on the labor market. Employment is expected to stabilize during this year and then expand slightly again in 2015 (by 0,3% in the whole economy, by 0,5% in the private sector)”.
The job offer should start growing again this year, “thanks to the progressive disappearance of the discouraging effects that had compressed the dynamics in 2013 – continues the bulletin –, keeping the unemployment rate still high. Preliminary indications for the April-May two-month period confirm the stationary nature of employment and predict an adjustment of the unemployment rate, after 12 quarters of growth, to the levels of the first three months of the year”. The unemployment rate, therefore, should rise to 12,7% in 2014 (from 12,2% in 2013) and then decrease slightly next year, to 12,6%.
CONSUMPTION GROWS AGAIN FOR THE FIRST TIME SINCE 2011
The Central Bank then notes that in the first quarter of the year household consumption returned to growth “for the first time since the beginning of 2011, albeit marginally (+0,1%). Household spending (which returned to marginal growth in the first quarter of this year after 12 quarters of contraction) should stabilize in 2014 (+0,2%) and grow in 2015 (+1,1%), supported by the recovery of income available".
According to Via Nazionale, the 80 euro tax bonus will have a positive effect on consumption, with an increase of +0,2 percentage points in 2014-15. "The measures to reduce the tax burden on labor - explains Bankitalia - could have a more pronounced effect if they are maintained in the coming years, as already announced by the government, and perceived as part of a lasting economic policy orientation".
IN 2014 INFLATION AT HISTORIC LOWS: +0,4%
As for inflation, it is estimated at +0,4% this year (new all-time low) and at +0,8% next year. According to the bulletin, consumer prices (HIP index) fell again, “reaching 0,2% over twelve months in June. Even net of the more volatile components, inflation was equal to 0,7%, among the lowest values in historical comparison”. Inflation, concludes Bankitalia, should be equal to 0,4% in 2014 and then rise again to 0,8 next year, thus remaining "very low".
