Prometeia presented its Forecast Report on the short-medium term prospects of the international and Italian economy yesterday in Bologna. 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 the three months since the presentation of the last Forecast Report, Italy has not had to request the support of the ESM, the stock markets are recovering, the bond markets as well, foreign investors are back to buying Italian public debt securities and the spread with the yields of similar German bonds has fallen to close to 250bps, the next elections no longer seem to be a source of instability but the growth forecasts for the Italian economy are being revised downwards for 2013 and, marginally, also for the next few years. Are we then faced with a contradiction? Only apparent, since the speed of exit from the recession is conditioned by the reduction of debt levels, which in Italy's case is public debt.
Although the third quarter of 2012 was better than expected, the end of the year was still very weak due to a downward correction in demand estimates for investment, capital goods and construction as the reconstruction of the earthquake affected areas of the 'Emilia hasn't started yet and the prospective weakness of demand is holding back production plans more than expected.
Prometeia confirms the forecasts of a 2.1% drop in GDP for 2012 (-2.4% in the October Report), and marginally revises downwards the forecasts for the current year (-0.6% compared to -0.4%) because the deterioration in the fourth quarter drags on negatively on 2013.
The lowering of the country risk premium will not be sufficient to counteract the restrictive effects of the slow path of deleveraging of the public sector undertaken by our country: its consequences in terms of reduction of disposable income of the private sector and contraction of direct demand for public origin will continue to dominate the Italian scenario also for the first half of the year. Only starting from the summer months will domestic demand join foreign demand to put an end to seven quarters of falling GDP, the longest post-war recession.
Exchanges with foreign countries
The engine of the recovery will be exports. Although the current year will be characterized by still modest growth (2.1%), both due to the slow recovery of the international economic cycle, especially that of the EMU countries, and to the appreciation of the exchange rate of the euro against the main currencies. The foreign sector will thus contribute positively to GDP growth for the third consecutive year.
Investments
The downsizing trend in business investment activity could continue until the middle of the year, discounting the weak prospects for demand, excess production capacity and, in all likelihood, the still unfavorable conditions for accessing credit, despite the tensions financial markets have begun to ease. The expected recovery in the second half of the year would not be sufficient to prevent a still significant decline in the average for the current year (-2.7%) after the 11.3% estimated by Prometeia for 2012.
The consumption
On the other hand, the recovery in household consumption is much slower. Also in the fourth quarter of last year the contraction in consumer spending continued with a drop of 4.1% in average annual terms in 2012. The contraction phase will tend to continue for most of the current year and therefore also 2013 should record a significant decrease in consumer spending in average annual terms (-1.5%) confirming that, overall, the fall in this component of demand is, in this phase, more intense and prolonged than that suffered during the significant fiscal adjustment implemented in 1992-93.
The forecast for the two-year period 2014-2015
The growth of domestic demand will turn positive again with an increase of 0.9% in 2014 and 1.3% in 2015, after three years of contraction, contributing positively to GDP growth. The latter would amount to 1.3% in 2014 and 1.4% in 2015, substantially in line with that indicated in the last Forecast Report.
The occupation
After the summer lull, the unemployment rate began to rise again in October and November, reaching 11.1%, a level that had not been recorded since 1999. At a slower pace, unemployment, and with it the unemployment rate, will continue to increase until the first half of 2014, for about a year after the fall in economic activity has stopped and the recovery has started. In this period the unemployment rate will touch and will remain close to 12% for a long time. This persistence is an expression of the slowness with which the labor market reflects cyclical fluctuations, although its greater flexibility has accelerated its reactions in recent years.
Public accounts and interest expenditure
The more rapid reduction in the spread already observed in the final months of 2012 and the better prospects for its future evolution are reflected in a more favorable estimate of long-term rates and therefore of the average cost of debt. Compared to the forecasts formulated in October, the rate on BTPs is lower by 1.3 points on average in 2013, 0.5 points on average in 2014. It can be estimated that on the maturities of BTPs, Ccts and Ctzs (154.7 billion in 2013, 158.8 in 2014) a reduction of this entity would result in lower interest of 1.1 billion in 2013, 3.3 in 2014, 4 in 2015, to which must be added the savings on net new issues, approximately 300 million in 2013, 600 in 2014, 1.7 billion in 2015.
The tax burden will reach an all-time high, close to 45% of GDP. It will be sustained above all by the growth of indirect taxes on which both the corrective decrees approved in 2011 and the stability law of last December insisted: increase in the ordinary VAT rate from 21 to 22% starting from 1 July, Tobin tax, further increases in stamp duties and finally, the introduction of Tares, the new local tax on waste disposal and on the supply of indivisible services.
