(Finance) – “In the second quarter growth remained solid in the United Stateswhile GDP slowed markedly in China, also due to the real estate crisis. Global economic activity decelerated in the summer: the expansion in services slowed down and the decline in the manufacturing cycle continued. According to forecasts published in October by the IMF, global product will slow down in the two-year period 2023-24. Geopolitical tensions, accentuated by the recent terrorist attacks in Israel, weigh on the evolution of the global economic situation. The weakness of goods trade weighs on the prospects for international trade. Energy prices have started to rise again”. This was stated by the Bank of Italy in its latest economic bulletin.
“According to our estimates, the stagnation of GDP in the euro area, which has been ongoing since the end of 2022, continued also in the summer months”, recalls the Bank of Italy, explaining that “in September consumer and core inflation fell to 4.3 and 4.5 percent, respectively. In the projections of the ECB experts, the dynamics of consumer prices will decrease markedly in 2024 (to 3.2 percent) and in 2025 (to 2.1). This downward path is supported by the reduction in inflation of the most persistent items in the basket of goods and services.”
“According to our assessments, the decline continued after the second quarter the phase of weakness of economic activity in Italy, extended to both manufacturing and services. The indicators confirm the weakness of domestic demand, which reflects the tightening of credit access conditions, the erosion of family incomes due to inflation and the loss of vigor in the labor market. Exports are affected both by the lack of liveliness in global demand and by economic activity in the euro area”, explains Bankitalia in its latest bulletin regarding the weak growth in the summer months in our country.
“In the July-August two-month period the labor market has shown signs of a slowdown: employment and the participation rate remained essentially stable. The dynamics of wages in the non-agricultural private sector strengthened, but the upward pressure coming from contract renewals appears to be contained overall. Profit margins have declined across all sectors.”
“After the decline of recent months, in September consumer inflation increased slightly, affected by the increase in fuel prices. Core inflation remained virtually unchanged, at a level well below the peak reached in February. Families and businesses expect an easing of inflationary pressures.”
Regarding the demand for financing “it is slowed down both by the increase in the cost of loans and by the lower liquidity needs for investments. Surveys of banks also highlight that the greater risk perceived by intermediaries and the lower willingness to tolerate it continue to contribute to a tightening of loan granting policies, weakening their dynamics. Intermediaries expect a further tightening of the criteria for granting credit to businesses. New impaired loans remain at low levels”
“According to the new public finance objectives – updated by the Government at the end of September – in 2023 net debt and debt in relation to GDP would continue to decline and would stand at 5.3 and 140.2 percent respectively”, recalls Bank of Italy, adding that “an expansion of the deficit compared to the current legislative framework of approximately 0.7 percentage points of the product is scheduled for 2024. Net debt would gradually decline in the coming years, up to 2.9 percent of GDP in 2026. The impact of debt on GDP over the next three years would show only a marginal reduction, with risks trending upwards“.
“In the base scenario of our forecast framework the GDP would increase by 0.7 percent this year, 0.8 in 2024 and 1.0 in 2025. Growth would be affected by the tightening of financing conditions and the weakness of international trade; it would instead benefit from the effects of the PNRR measures and the gradual recovery of families’ purchasing power. Inflation would reduce to 2.4 percent in 2024 (from 6.1 in 2023) and to 1.9 in 2025. The decline reflects the sharp slowdown in import prices, determined above all by the decline in trend terms in the prices of energy raw materials. Core inflation would fall to 2.3 percent in 2024 (from 4.6 in 2023) and to 1.9 in 2025, in line with the progressive fading of the effects of past energy price increases and the slowdown in domestic demand “, concludes Bank of Italy.