legislative elections in a deteriorated economic context

legislative elections in a deteriorated economic context

Italians called to the polls this Sunday for legislative elections called because of the fall of the coalition government of Mario Draghi in the heart of summer. The latest poll gives the winner to the alliance dominated by the extreme right and bringing together Fratelli d’Italia, La Ligue and the conservative party Forza Italia. A vote that is held in a gloomy economic context.

Clouds have started to gather over the Italian economy. Admittedly, in the second quarter, GDP growth in the boot accelerated to more than 1%, much more than in Germany. Growth sustained by the good performance of domestic demand. But for next year, forecasters expect the economy to stagnate.

At the time of the electoral choice, inflation continues to weigh on the purses of Italians, the only ones in Europe, according to the OECD, to have also seen their wages fall between 1990 and 2020.

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In August, prices rose 8.4%. The biggest increase since 1985 in this major gas-consuming country. And the shock would have been even more painful without the state aid released for the occasion. But the room for maneuver of the second industrial power in the euro zone is not infinite. Rome is already crumbling under a debt of more than 2700 billion euros, one and a half times its GDP.

As for employment, unemployment fell slightly in July to 7.9% but remains well above the euro zone average. The female activity rate remains well below that of the euro zone.

We will have to pay a lot of attention to what will happen in terms of fiscal policies. What we see is that the victory of the right-wing coalition led by the party of Giorgia Meloni is almost certain. However, during the campaign, the coalition proposed very expansionary budgetary policies. According to our analysis, if these policies are implemented as promised, they would cause serious public finance problems.

Nicola Nobile, Chief Economist for Italy at Oxford Economics