Prometeia presented today in Bologna the Forecast Report on the short-medium term prospects of the international and Italian economy. This Report, drawn up every quarter since 1974 by Prometeia Associazione, is recognized as one of the most important moments in the analysis of the international economy and of our country.
In Italy, compliance with the fiscal compact is linked to the reduction in yields on long-term securities as a consequence of reduction of the differential between BTPs and Bunds, below 300bps in 2014 to reach close to 200bps at the end of 2015. Is it possible to reach these levels without intervention by the ECB? Econometric assessments made within Prometeia suggest that the Btp-Bund differentials justified by the deficit and public debt fundamentals could be around 200bp. This means that yields on 3.5-year BTPs could currently be around XNUMX%.
In the current economic and political context, and in what will take place in the first half of 2013 in conjunction with the general elections next April, with Greece's difficulties dragging on for a long time, with the risk that Portugal will once again find itself in difficulty, Prometeia deems it improbable that the spread for our securities will begin to decrease, while instead there is a risk that it could increase. The only way to prevent it is to anticipate it by asking for interventions by the ECB on the market for our securities.
By 2012, Italy has met its budgetary targets and is about to exit the excessive deficit procedure while the approval of the stability law should guarantee the achievement of those envisaged for 2013. Furthermore, our country has included in the Constitution the structural balance of the budget to guarantee compliance with the tax compact. There would be no reason to ask the country for further budgetary restriction measures. While the still possible turbulence on the financial markets could make the efforts made over the past eighteen months useless. A timely and coordinated request with Spain and Germany could minimize financial and political risks ensuring a recovery in growth. It would be an insurance against dramatic outcomes that could cause Italy to fall back into an even more serious crisis because it would suffer from two important phases of recession.
Even with a margin of uncertainty, Prometeia believes there are good reasons to consider these autumn months as the bottom of the Great Recession. On the other hand, all the cyclical indicators confirm this analysis: the rate of fall in industrial production is slowing down, which will return marginally positive in the fourth quarter (+0.2%). The weakness of the demand for services and construction, hit by the crisis in household consumption and the block on public investments, will keep the GDP down until the end of the year (-2,4% compared to 2011). In 2013 the Italian economy will come out of the real recession but with a slow recovery, far from the pre-crisis levels and from the recovery that France and Germany will instead have put in place. The year would close with another negative sign (-0.3%) in the change in GDP. In the following two years, however, there could be the conditions for growth between 1 and 1.5%.
Prometeia believes that the European Central Bank will reduce the main refinancing rate by 25 basis points at the end of 2012, keeping it constant at 0.50 per cent over the next three years. In the coming months, the ECB should therefore combine interventions on the secondary bond markets, aimed at reducing investors' risk aversion and restoring the normal transmission mechanisms of monetary policy, with maneuvers of a conventional type, in an attempt to at least partially offset the negative effect exerted by the recent appreciation of the euro on the competitiveness of the EMU countries. We also believe that the ECB continues not to remunerate overnight deposits, narrowing the monetary policy corridor.
