(Finance) – “In the first part of 2022 the Italian financial markets were affected by the worsening of uncertainty and risk aversion. Share prices, especially those in the banking sector, fell in connection with the start of the war; they then partially recovered. The sovereign spread and the financing costs of companies and banks have risen “. The Bank of Italy notes this in the Economic Bulletin.
In a “tougher” scenario worsening of the war in Ukraine and tensions with Russia over sanctions, with a shutdown of natural gas supplies from Moscow, Italy’s GDP “would decrease by almost half a percentage point both this year and next”. These are the figures hypothesized by the Bank of Italy in an analysis entitled “the impact of the war in Ukraine on the Italian economy: illustrative scenarios”, inserted in the Economic Bulletin. It contains three different hypothetical scenarios, with relative economic estimates, one mild, one intermediate and this, in fact, more severe in which “compared to what was predicted in the Economic Bulletin of last January, the product – says Bank of Italy – would be reduced by more than 7 percentage points overall in the two-year period 2022-23. Inflation would approach 8 per cent in 2022 and fall to the 2.3 in 2023 “.
Moreover, “in the current context of very strong uncertainty, even more unfavorable scenarios cannot be excluded. The consequences of the conflict on the Italian economy will also depend to a significant extent on the economic policies that can be adopted to counter the recessionary forces – adds the institution of Via National – and curb the price pressures highlighted in the scenarios presented here “.
The three hypothesized scenarios “they do not express an assessment regarding the evolution deemed most probable for the economy in the years to come – specifies the Bank of Italy – and therefore do not constitute an update of the projections for Italy”. In the most favorable scenario, which assumes “a rapid resolution of the conflict and a significant reduction of the tensions associated with it, GDP growth would be around 3 per cent in 2022 and 2023; inflation would rise to 4 per cent, respectively. and 1.8 per cent. In the intermediate scenario – we read – formulated assuming a continuation of hostilities, GDP would increase by around 2 per cent in both years; inflation would be equal to 5.6 and 2.2 In the most severe scenario, which also assumes an interruption in Russian gas flows only partially offset by other sources, GDP would decrease by almost half a percentage point in 2022 and 2023; inflation would approach 8 per cent. one hundred in 2022 and would drop to 2.3 the following year “. “This wide range of estimates – the institution points out – does not take into account possible new economic policy responses that will be essential to counter the recessionary pressures and the pressure on prices deriving from the conflict”.
“Based on the most recent indicators, we estimate that in the first quarter of 2022, GDP recorded a reduction of just over half a percentage point on the previous period. The economic information available so far points to a decline in both manufacturing and services; in the latter sector, the decline would be connected above all with the weakening of household spending “, notes the Bank of Italy.” The indices of purchasing managers of manufacturing and service companies have fallen compared to the end of 2021, although remaining at high levels in March. The March surveys of the climate of confidence, the first following the invasion of Ukraineshow a marked deterioration for families, above all of the prospective component, in the face of a holding in business confidence. In perspective – adds Bank of Italy – the conflict in Ukraine could weigh on Italy’s GDP through various channels “.
“The war in Ukraine exacerbates downside risks to business and upside risks to inflation. Following the invasion, a large section of the international community responded promptly to Russia with sanctions that are unprecedented in severity and extent. The immediate effects of the conflict on prices in global financial markets have been significant – it says – although they have attenuated since mid-March; volatility remains high in many market segments “.” The prices of raw materials, especially energy, for which Russia holds a significant share of the world market, have increased further. Overall – says the study – the war exacerbates downside risks for the world economic cycle and upside risks for inflation “.
“Among the main world economies, Germany and Italy show the greatest dependence on raw materials from Russia: the input of energy and metals from this country represents 7 per cent of the total needs of Italy and 8 per cent of Germany. The same economies could also be among the most affected, directly and indirectly through global value chains, by a block on exports to Russia “, Bank of Italy notes, underlining that” Russian final demand absorbs 0.6 per cent of the total added value produced in Italy and 0.9 of that produced in Germany; the share is on average equal to 0.3 for advanced countries – we read – and 0.4 for emerging economies “.
The possible interruption of Russian gas flows “could be compensated for about two fifths, by the end of 2022 and without affecting the national reserves of methanethrough the increase in the import of liquefied natural gas, the greater use of other suppliers and the increase in the extraction of natural gas from national fields “, it is estimated by recalling in the economic bulletin that more than a fifth of imports come from Russia total energy, but “for natural gas alone the share exceeds 45 percent”. “In the medium term – adds Bank of Italy – it would be possible to fully compensate imports of Russian gas with more substantial investments in renewable sources, as well as by strengthening of imports from other countries “.
On how to replace natural gas from Russia, the Bank of Italy study hypothesizes “solutions such as the increase in the import of liquefied natural gas, in particular from the United States and Qatar; the greater use of other suppliers, such as Algeria and ‘increase in the extraction of natural gas from national fields “. Limited to the gas used for the production of electricity, then “the reopening of coal-fired power plants is also one of the strategies that could be used, at the cost, however, of a significant increase in polluting emissions. In the medium term – it says – it would be possible fully offset Russian gas imports with increased investment in renewable sources and with the strengthening of imports from countries other than Russia (through gas pipelines and, above all, regasification plants).