GDP forecasts were too low: is there an air of recovery in Italy in the end?
Two recent reports of major revisions to Italy's GDP growth – by the IMF and Istat – reminded me that a couple of years ago I commented in these columns on a pessimistic report by Standard & Poor's on the growth prospects of the Italy. I noticed then that the pessimism of S&P was perhaps exaggerated, perhaps a sort of extrapolation of the Bel Paese's past growth difficulties. The most important consideration I made was that it is very difficult to predict how the macroeconomic dynamics of a country will respond to important reforms. Take labor market reform. Albeit with significant differences, the Italian Jobs Act of 2015 was inspired by the Hartz Act, the reform of the labor market introduced in Germany in 2003. Well, by comparing the difference between forecasts of GDP growth formulated (in April of the reference) and growth actually achieved during the year (in both cases given by the IMF), something interesting can also be seen from the updates of the calculations I had made at the time.
Figure 1 shows us that between 1998 and 2003 forecast errors were on average negative in both Germany and Italy, ie there was a tendency to forecast more growth than would actually be achieved. The situation changed after the Hartz Act (the first vertical line, black and solid): while forecast errors continued to be generally negative in Italy, they became predominantly positive in Germany and remained so even after the outbreak of the global crisis. It is therefore legitimate to ask whether even in Italy after the Jobs Act (the second vertical line, black and dotted) growth will be able to exceed that expected. It is perhaps still early enough to be able to say for sure but the three observations available, referring to 2015, 2016 and now 2017, give us growth in Italian GDP, which has been revised by +0,5%, compared to the IMF forecast in April of the current year, both in 2015 and in 2017 (the 2016 figure had been revised downwards, but only by -0,1%). In short, after the approval of the Jobs Act, from 2015 to 2017, the Italian economy would have recorded a 0,9% higher GDP growth than originally forecast.
It goes without saying that this is certainly not an exploit. However, especially if it is confirmed that for the third consecutive year the dynamics of investments in 2017 exceeds that of the GDP (+3,0% and +4,0% the forecasts of last June, respectively by Istat and the Bank of Italy), the The strength of the recovery could eventually be toned significantly. The restarting of the investment cycle is the best news in many years. In fact, the lack of recovery of the Italian economy was largely due to a lack of confidence in our business class and if it has returned to invest, this gives us hope that some confidence has returned.
