Slowly, but forward. The Italian economy has stopped sinking, but the recovery is slow and hindered by the weight of the public debt (whether of households, companies, banks or the public sector) and by the need to recapitalize the banking system. For three quarters, GDP growth has fluctuated around zero, in an alternation of +/- 0.1% which mediates between sectors already in clear recovery and others still in recession, with a sectoral diffusion of the recovery that is struggling to widen. Prometeia expects that even in the next three years, the pre-conditions for the reduction of the weight of public debt on GDP will remain difficult, regardless of budgetary policies.
The growth of nominal GDP, about 2.6 per cent on average per year between 2014 and 2017, decidedly lower than the nominal yield on long-term government bonds (3.8 per cent if we look at the average cost of public debt given the assumptions of of the spread contained in the forecast), will imply a primary budget surplus of at least 1.2 per cent of GDP to prevent the public debt/GDP ratio from increasing, greater than 1.2 if this ratio is to be reduced. Prometeia forecasts that the increase in GDP this year will stop at 0.3%, then rising to 1.2% in 2015 not only due to the effect of historical data which is worse than expected, but also due to the strength of the international cycle whose momentum is lower to expectations and the strength of the euro which persists despite the further easing of monetary policy.
In this context, the decisions adopted by the Governing Council of the ECB on 5 June may represent a decisive step forward in support of the recovery. From next September to September 2016, they provide for the disbursement of liquidity to banks in an amount equal to three times the amount of loans made. Liquidity which should allow Italian banks not only to restart, already in the last quarter of this year, the channel of credit to the economy by reducing the cost of funding, but also to maintain or even expand their own portfolio of securities of the Italian public debt, allowing easier management of the same and validating a decrease in spreads on German securities. More bank credit offered at lower rates, a lower sovereign spread and therefore a country risk premium that is lower for all Italian issuers and from which businesses would also benefit.
With the help of the 2nd quarterly model for the Italian economy, Prometeia estimates that the positive effects will manifest above all on capital investments and above all during 2015, quantifiable effects, in extreme synthesis, in about two tenths of GDP. The low inflation that is characterizing this phase of the slow start of the recovery is not helping. If, despite everything, the gradual recovery of foreign trade will continue to be one of the drivers of the recovery, it should be remembered that the great progress made by our companies on foreign markets has not filled the gaps in the ability to intercept foreign demand. Our price competitiveness has not recovered from the huge losses accumulated in the 2000s and doing so when inflation is close to zero and is very low everywhere in Europe becomes almost impossible, if not risking deflation even if in recent months it seems to have stopped expectation of a generalized reduction in prices.
In summary, a recovery that has started timidly but needs support to consolidate, support that monetary policy has equipped itself to provide, which fiscal policy will have to try to do by making the most of all possible spaces and tools. A support that must aim at promoting only the components of demand on which we can leverage and which identify a totally different development model from the unsatisfactory one that characterized the pre-crisis years: less investment in construction and public consumption , more support for household consumption, investment in capital goods (and high technological content), exports.
The occupation. Are there any uncertain signs of an adjustment in the labor market? Even the labor market shares the uncertainty that characterizes this cyclical phase, in which positive and negative signals intertwine to outline a situation that is difficult to interpret. In the first quarter, employment was still down on the previous year by -1.2 per cent in terms of standard units, by -1 per cent in terms of job positions. The simultaneous increase in the supply of labor (+0.2 percent compared to the previous year) brought the unemployment rate to 12.7 percent. The first provisional information on the spring months does not dispel the uncertainty: after a fall in employment of 0.4 per cent in April there was an increase (0.2 per cent) in May; the unemployment rate first fell to 12.5 percent before returning to 12.6 percent. Although monthly labor force survey data are highly volatile and subject to extensive revisions, these swings nonetheless signal the absence of a clear direction in employment trends.
Uncertainty that also emerges from the data on recourse to the Redundancy Fund, growing in the first few months of the year in the extraordinary components and, by way of derogation, decreasing in the ordinary management. Data that can be read as the expression of a phase of cyclical adjustment which reduces the demand for new interventions but which does not slow down the process of closure and downsizing of companies, the "poisoned tail" of the crisis. In any case, a slow recovery in 2014. The slowness with which this recovery cycle is starting after the Great Recession will at most make it possible to halt the fall in employment starting from the second half of the year, but will not allow a reabsorption of unemployment short term. On the contrary, the simultaneous increase in participation which always accompanies the phases of cyclical restart, since those who, discouraged, had withdrawn from the labor market reappear on it, could lead to a further increase in the unemployment rate, which would come close to 3 percent, a historic record.
Regulatory interventions could favor a greater cyclical reactivity of employment... In this moment of restart, companies will be favored by the legislative measures recently launched (Labour Decree No. 34/2014) which, by allowing a more flexible use of fixed-term contracts and of apprenticeships, could increase the cyclical responsiveness of employment in the coming months, helping to mitigate the negative effects of the uncertainty that is characterizing this turning point and which makes companies very cautious in hiring.
However, it is not yet clear how the discussion on the enabling bill will evolve, which should concretely implement the so-called Jobs Act, an ambitious project for the redesign of social safety nets, employment services and active policies, the reorganization of employment relationships and support measures for maternity and reconciliation. In any case, compared to the almost 2 million work units (1 million job positions) lost since 2007, much less than half of them will be able to be recovered in the next three years, so that unemployment will drop from the current over 3 million and 200 to 2 million and 900 thousand at the end of 2017, 11.4 percent of the workforce. Practically only the private services sector will be able to increase employment, the only one which at the end of the forecast horizon will have more employees than in 2007. For all the other sectors the balance will be negative, particularly heavy for the industrial sector, which will have lost about 800 work units, but also for construction (-400) and Public Administration (-300) the losses will still be huge.
Passive interests. According to Prometeia estimates, in 2014 interest expense will further decrease even in absolute levels and will remain substantially constant in 2015, consistent with a reduction in the average cost of debt from 4.1 per cent in 2013 to 3.8 per cent in 2015. In terms of GDP, interest expenditure would drop from 5.3 to 5.1 per cent in the same years.
