How much does the inefficiency of politics weigh on the Italian crisis? How impoverished have families become in the last 10 years? What prospects are there for the international scenario on the brink of recession? Will the situation that occurred in the United States in 2008 be repeated in Europe? These and other questions were answered by the Forecast Report presented by Prometeia. Here is a summary of the study that has been presented since 1974.
The Italian public debt crisis and the uncertainties of our economic policy.
Italy is at the center of the risks of a global crisis that Europe, the fulcrum of the current state of the long financial crisis, could theoretically trigger. The perception on the part of the financial markets that the Italian government, after the electoral rounds of May and June, intended to proceed with a relaunch of the economy, giving second order to the commitment to zero the public deficit, while the new phase of the Greek debt crisis, triggered a wave of sales of Italian bank shares on 23-24 June. Subsequently, the uncertainties in designing the budget policy for the elimination of the deficit in a reasonably short time shifted sales directly to our public debt securities, even if there were no liquidity or solvency problems. Unlike Greece, whose crisis could not have been avoided, the excessive concentration of some members of the Italian government on short-term electoral needs has given way to negative portfolio shifts for our public debt that could have been avoided. Rebuilding the credibility of Italian economic policy will not only be onerous for households, businesses and the banking system, it will also be prolonged because however targeted, innovative and profound the "development measures" may be, their effects will slowly accrue. The cost of our debt will gradually rise from 4.5 points of GDP to 5.3 percentage points, almost 90 billion euros in 2014. The already slow pace of our economy, lower than the European one for a decade now, will be further reduced by fiscal restrictions , by higher interest charges which will also spread to the private sector and by the negative cycle of investments in construction, as far as domestic demand is concerned; the slowdown in the growth of foreign demand will also contribute to reducing the growth rate. During 2012, the Italian GDP will fall by an average of 0.3 percent. This result will follow from two quarters of fall in GDP between 2011 and 2012. The subsequent recovery will once again be very slow, below 1 per cent.
In 2012 household disposable income in real terms will be in decline for the fifth consecutive year.
The measures to correct the deficit will mainly affect the formation of household disposable income, which will also fall in real terms in 2011 and 2012, after having already decreased in the previous three years. Over the five years as a whole, at the end of 2012 household disposable income will have decreased in real terms by 5.6 per cent, returning to the level of 2000. Not only will the increase in the tax burden, which will rise to 44 per cent and it will remain until 2014. The trend in employment over the past few years has also played a significant role in reducing the growth of disposable income. Over the next three years, the contribution of employment will show different signs: decreasing again in 2012, as already signaled by the increases in Cig requests in the month of September just ended, and slightly recovering in the following years. The possibility of avoiding falls in the level of world trade and therefore in our exports will allow employment in industry in the strict sense to recover in 2013 the path of slow recovery which it had already undertaken in 2011.
Businesses will also suffer from the public debt crisis.
Businesses will also be affected by the difficulties of European sovereign debt. From the point of view of consumer demand, the uncertainty of the future, the loss of value of shares and public debt in household portfolios will determine the fall in consumption over the next year. From an investment perspective, uncertainty about consumer decisions will make investment processes more cautious. Finally, from the point of view of corporate financing, the difficulties of sovereign debt are already manifesting themselves with the increase in the cost of funding for credit institutions and with the reduction in the value of Italian public debt in the balance sheets of banks, conditions both which tend to increase the cost of loans and the greater selectivity in their granting, given, on the one hand, the end of the credit moratorium and, on the other, the increase in non-performing loans as an echo of the first stage of the crisis.
The international scene.
The international scenario undergoes a downward correction in the Prometeia Report. The anticipatory signs of a slowdown in American growth have been confirmed by the most recent data. As expected, the Fed is adopting a permissive attitude which translates into a prolonged stability of the monetary policy rate at 0.25 per cent until 2014. Fiscal policy is attempting an action of fiscal support to productive activity, conditioned by the possibility of overcoming the veto of the Congress controlled by the Republican party. Emerging countries are also suffering the expected effects of the slowdown in international growth and of the policies implemented to contain the effects induced by monetary expansion in advanced countries. The slowdown is most evident in Brazil, while the BRIC country least affected at present is India. Concerns remain latent for China about a possible abrupt halt in growth which could not be matched by fiscal support similar to that of 2009. All this is translating into a slowdown in world GDP growth from 5.1 per cent in 2010 to 3.6 per cent in 2011 and will translate into a slight further slowdown to 3.4% in 2012. The reaction of world trade already underway is producing a slowdown from 15.4% to 6.9% to reach a rate of 4.8% in 2012. Over the next few months, the decline of the European inflation rate is a forecast shared by many which will go hand in hand with the emergence of the first signs of a strong slowdown and in some cases of recession of the European economies. These observations, together with the evolution of the sovereign debt crisis, make it very probable that by the end of the year the ECB will reduce the reference rate by 25 basis points to proceed towards the end of the following quarter with another cut of the same amount. In a condition of no further dramatization of the crisis, our forecast is that the reference rate will remain at 1 per cent for the next two and a half years.
In summary.
In summary, after the first phase of the crisis which found its fulcrum in the United States, the European institutional insufficiencies and the mismanagement of these insufficiencies have opened up a new front of the crisis this time in Europe. Once again financial "disaster" seems imminent. In this context, Prometeia's forecast of a recession already underway in the Mediterranean countries which will translate into zero growth of the European economy next year combined with a prolonged slowdown in American growth but not a real recession and a contained slowdown in emerging countries, may appear optimistic. What is the basis of this optimism? Why does Prometeia believe that what happened in 2008 will not be repeated? First of all, the burning surprise of the Lehman bankruptcy is missing due to the simple fact that it has already happened and the possible Greek default has been announced for some time and it is very likely that if it happens it will be orderly, even if obviously not without negative effects. Secondly, let us trust the astuteness of history: Europe's many bedside doctors cannot keep getting every move wrong. They are trying everything and in the end they will be left with the only right options in which the valuation of the costs of letting Greece proceed towards a unilateral default, with the risk of a euro split, is significantly higher than the cost of even a partial bailout. but neutralized in its potential side effects. This is not just a wish of Prometeia, but the prediction that political rationality will eventually emerge even before economic rationality. In this way, Spain and Italy will be granted two years' time. To recapitalize its banking system, in the case of Spain; to restore the credibility of the political class and, alternatively, the public debt, in the case of our country. True, many events may not take the right turn and create a short circuit between Europe and the United States, bringing us back to the conditions of 2009, but more disarmed. It is a risk that we do not consider dominant, but it should not be overlooked.
