(Finance) – TheParliamentary Budget Office (PBO) updates macroeconomic forecasts for the period 2023-25. The PBO’s estimate of the annual change in GDP stands at 0.8 percent for 2024 and 1.1 percent for 2025. The trend of reabsorption of inflation and stability of the labor market continues. With the Note on the February economic situation. The PBO’s forecasts have worsened slightly compared to those formulated in October for the validation of the NADEF macroeconomic framework. The revisions are mainly attributable to the deterioration of the international context (conflicts in the Middle East and unfavorable trends in important trading partners, such as Germany). The macroeconomic framework is therefore subject to various risks, overall oriented towards the downside. This is what the PBO finds in Note on the February economic situation.
Italy scenario in 2023: moderate growth, slightly higher than that of the euro area –
Since the third quarter of 2022, the Italian economy has been weak overall, recording a cyclical change in GDP of just one tenth of a point on the average of the six quarters. The increase compared to the levels of activity before the outbreak of the pandemic is however greater in Italy, compared to Germany and France. For 2023 as a whole, based on quarterly accounts, GDP increased by 0.7 percent; the growth calculated on annual data (which will be released by Istat on March 1st) could be just lower.
Household and business spending is cautious – Household spending began to grow again in the third quarter, thanks to the increase in employment and therefore in purchasing power. However, the increase in nominal incomes has been eroded by the rise in prices and the orientations of Italian families remain marked by caution. Investment spending was inconsistent and not very dynamic last year. Manufacturing firms report credit and liquidity conditions still tight in the fourth quarter, but improving. According to economic surveys, companies foresee a moderate expansion in investments in the current year.
Exports are affected by the weakening of global trade – After the marked contraction in the first half of 2022, attributable to the deceleration in world trade, exports recovered in the summer quarter. According to the data currently available, the change in exports acquired for 2023 was however less negative than that of Germany and the euro area.
Sectoral trends are heterogeneous, uncertainty among families and businesses increases – Recent sector indicators outline an overall weak economic dynamic, in the face of marked sectoral differences: industry contracts, the tertiary sector holds up and construction recovers quickly in the final months of 2023. The uncertainty of families and businesses, revealed by the indicator of the PBO, marked a marked increase in the final part of last year, driven by both components.
Unemployment rate declines and wage growth intensifies moderately – Employment increased by 1.9 percent in 2023, driven by the permanent component, against the reduction of the fixed-term component. The employment rate (15-64 years) reached almost 62 percent in December, the highest value since the beginning of the survey. In the last quarter of the year the unemployment rate fell slightly, to 7.4 percent; in the same period the imbalance between supply and demand for labor remained high. The increase in hourly contractual wages intensified in the summer quarter (3.0 percent on a trend basis). According to the projections made by Istat, taking into account the provisions contained in the contracts in force until last December, contractual wages would still increase to a limited extent this year (2.3 percent on average in the first half of the year).
Inflation returns but the energy unknown remains – In Italy too, inflationary pressures are easing and wage dynamics do not indicate a wage-price run-up, as expectations normalize. 2023 was a year of decline in inflation (5.7 percent NIC index), in the wake of the energy component, which became deflationary in the autumn. However, the prices of food and services have accelerated, leading to a non-negligible drag on 2024. Core inflation, however, increased in 2023 (5.1 percent), as did that relating to the shopping cart, which reached a very high value in historical comparison (9.5 percent), with a very significant impact on the budgets of families with lower incomes. The current year is compared with a 2023 in which the increases were rapid, so in the winter period there is an unfavorable base effect, which should lead to a temporary increase in inflation in the first quarter compared to last autumn’s values.
Macroeconomic forecasts for the Italian economy for 2023-2025 – For 2023, growth in Italian economic activity is estimated at 0.6 percent, compared to the 0.7 percent inferred from the quarterly series. For the current year, a slight acceleration in GDP is expected, to 0.8 percent; after a still weak first quarter, due to persistent global tensions, growth should gradually strengthen, benefiting from lower inflation and the acceleration of foreign demand. In 2025, the GDP trend should consolidate at 1.1 percent, assuming a gradual improvement in the international geopolitical and economic context and the start of the normalization of monetary policy from the middle of this year. The forecasts are based on the hypothesis of the complete implementation of the PNRR investment programs and on the expectation that geopolitical tensions in the Middle Eastern area will dissipate in the short term.
Modest revisions compared to October forecasts. Risks are skewed to the downside – In comparison with the macroeconomic framework formulated by the PBO in October, on the occasion of the validation exercise of the NADEF 2023 forecasts, the lower GDP growth (two tenths of a point on average for 2024-25) reflected the deterioration of the hypotheses on international trade and the slight appreciation of the exchange rate. The prospects of the Italian economy are exposed to multiple risks, which are overall unfavorable. The sources of uncertainty are predominantly exogenous in nature as they come from international factors, in particular geo-political ones (war in Ukraine and the Middle East), which could slow down global trade. However, the robust recovery of international trade for 2024 is essential to materialize the acceleration of Italian GDP in the two-year forecast period. Regarding the effects of tensions on prices, according to a scenario built with the MeMo-It econometric model, the increases in transport costs caused by the attacks in the Red Sea could affect consumer prices in Italy by a couple of tenths of a percentage point in a two-year horizon. Overall, the decline in inflation represents a key pillar of the macroeconomic framework and the evolution of prices this year will depend greatly on external variables, such as the costs of raw materials. Furthermore, as already reported by the PBO, there are critical issues related to the efficient use of European funds from the Next Generation EU (NGEU) program by Italy.
Finally, there are factors of uncertainty regarding monetary policies and the reform of the governance of public finances in the EU, in particular regarding the timing of the next developments.