(Finance) – “After the moderate expansion in the first quarter of this year, GDP in Italy continued to grow at a modest rate in the spring; it was supported again by services, in particular tourism, which benefits from the good performance of spending by foreign travellers. On the other hand, activity decreased in construction and manufacturing. On the demand side, the further expansion of exports and the positive indications on consumption are associated with a less favourable framework for investments. In our most recent macroeconomic projections, drawn up as part of the Eurosystem coordinated exercise, product will increase by 0.6 percent in the
2024 (0.8 excluding the correction for working days), 0.9 in 2025 and 1.1 in 2026″. This is what the Bank of Italy in his last Economic bulletin.
In recent months in Italy “overall inflation – notes the Bank of Italy – remained at low levels and the core component decreased slightly. Disinflation remained slower for services, due to both the components whose price lists adjust with delay to the trend of the general index, and the items connected to tourism, for which demand remains high”. According to companies, “consumer inflation would remain below 2 percent in the short and medium term. In our projections – Bankitalia referring to the estimates updated at the beginning of June – consumer inflation will be at low values, at 1.1 percent this year and at just over 1.5 on average in the two-year period 2025-26”.
There monetary tightening by the ECB between 2022 and 2023 “continues to impact the cost of credit”. And in Italy – the Bulletin states – “the decline in loans to businesses continues, albeit slowing; this is due not only to modest demand for financing, due to high interest rates and weak investments, but also to restrictive supply criteria due to the widespread perception of risk”. Bankitalia recalls that in June the Governing Council of the ECB reduced rates by 25 basis points for the first time since the previous tightening. It also reiterated its determination to ensure that inflation returns promptly to its medium-term objective, keeping rates at a sufficiently restrictive level for as long as deemed necessary.
In Italy, “employment continued to increase in the spring months: despite stable labor market participation at levels higher than those observed before the pandemic, the unemployment rate fell further, approaching the average for the area”. The growth of labor costs in the non-agricultural private sector – the Bank of Italy underlines – “has strengthened in recent months, driven by contract renewals in the services sector and by payments under agreements already in force”.
For Bankitalia Subsidies to Chinese industry risk worsening the EU’s dependence on foreign supplies. Overall, “the significant public subsidies to Chinese industry risk worsening the European Union’s dependence on foreign supplies, and on those of China in particular, in strategic sectors such as mobility and energy” underlines the Bank of Italy in an analysis box on China’s excess industrial production capacity, included in the Economic Bulletin. The institution of Via Nazionale cites a survey by the European Commission, which concluded “that the main Chinese electric vehicle producers benefit, along the entire value chain (from the extraction of raw materials to the production of batteries, up to the services of shipping goods to European ports) from subsidies that put European producers at a disadvantage”. The recent increase in tariffson which the EU followed the US “is aimed at countering any distorting effects of subsidies, also contributing to the reduction of European dependence on foreign countries in strategic sectors. On the other hand, there is the risk – observes Bankitalia – that a measure of this type, in addition to increasing the fragmentation of world trade, increases the costs of the energy transition”.
In general, according to Bankitalia “the Chinese growth model continues to present clear structural imbalances. The share of fixed investments in GDP is considerably higher than that observed not only in the major advanced economies, but also in other rapidly growing emerging countries, such as Brazil or India. On the other hand – the analysis notes – the share of consumption in product is among the lowest in international comparison. The combination of strong aggregate investments and weak consumption is reflected in a large trade surplus that has reached high levels compared to world GDP”. This surplus, then “has further increased with the crisis in the Chinese real estate sector and its consequences on domestic demand”. Because to compensate for the weakness of the latter, “the Chinese government has focused on the expansion of exports – concludes Bankitalia – strengthening financial support especially towards technologically advanced manufacturing and thus exacerbating the comparison with some of the major importing countries”.