Recession escaped? Secondo Promethea Yes. The economic indicators for the first few months of 2023 signal the possibility of a first half-year with "very low", but not negative growth for theItalian economy: for the entire year, the consulting company in the banking world and macroeconomic analysis expects growth of +0,7%, more optimistic by a few tenths more than the others circulated recently, but also compared to its own December. 2023 is in line with what is forecast for the Eurozone, albeit with strong heterogeneity between countries. Germany, for example, is expected to close negatively (-0,1%). While in 2024 it should rise a little more (+0,9% against +0,6% for Italy). Worldwide for 2023 it is forecast at +2,3%; that of 2024 at +2,7%.
Prometeia: recession escaped, but growth slows down
According to the Prometeia Forecast Report in March 2023, the rather mild winter and, consequently, the gas savings avoided rationing and controlled energy prices, avoiding the risk of a real one recession. On the other hand, inflation, the ECB's rate hike and, more recently, financial risks are spreading through the economy, rekindling fears of a stronger slowdown of the economic cycle. The question is: how intense and how long-lasting?
The effects of the ECB rate hikes
However, if in the past the return from inflationary flare-ups and since the consequent interest rate hike had led to a recession, or a slowdown in economic activity more marked than the current one, could we have escaped this time? The price race could end without experiencing a real recession - both at European and Italian level - with policy interest rates which, in the Prometeia scenario, will reach 4% in the euro area in June (with two further increases of 25 basis points each) to then drop back already at the beginning of 2024, immediately after the start of the cuts by the Federal Reserve, which instead stops at the target range of 4,75-5%.
The race in prices will eventually stop, even if the increase in interest rates implemented so far by the ECB could actually have limited effects (of a few tenths) in terms of lower inflation for Italy, reducing economic activity by about 1% over the horizon up to 2025. This is not a surprising result given that we are dealing with cost-push inflation: the monetary policy, by itself, will hardly be able to defeat it, if not at the price of higher real costs.
Prometeia on inflation: "Return to 2% from 2024 on three conditions"
The Prometeia scenario therefore envisages a return of inflation towards 2% from next year (for a few months at the end of 2023 it could even go below this threshold) and a slowdown to +0,6%-0,7% of GDP growth in the two-year period 2023-2024.
This will only be possible upon the occurrence of three conditions:
- If the energy price will remain at levels well below the maximum levels and in line with those currently prevailing on the markets, inflation could decrease during 2023, relieving pressure on costs and purchasing power, and curbing the decline in consumption. The absence of international shocks will allow the industrial cycle to restart, while the investments financed by the PNRR will help fill the void created by the absence of the 110% building bonus, in a context in which budgetary policy will have to take care of returning from the high debt levels, once the Stability and Growth Pact, albeit reformed, will be operational again from 2024.
- The implementation of the funds of the PNRR, despite the many implementation difficulties that are emerging month after month. In the Prometeia scenario, the PNRR will activate public and private investments for around 40 billion euros this year and next: a fundamental pillar, therefore, in support of growth.
- If the saving accumulated by households and businesses, especially during the Covid-19 pandemic, will effectively act as a "buffer" to deal with price and cost increases. The savings accumulated by households in the three-year period 2020-2022 would be a reserve, even psychological, which makes it possible to increase the propensity to consume in order to face the cut in purchasing power. For companies, even those most affected by the increase in costs and with fewer possibilities of passing them downstream, the lower debt and the accumulation of liquid reserves will allow for a temporary "sacrifice" on margins. The fiscal stimulus and, above all, the investments driven by the PNRR are fundamental, which will support domestic demand, making it possible to compensate for any narrowing of unit margins with the stability of turnover.
The resources of the PNRR will therefore represent the real engine of Italian GDP growth in 2023.
