For the second consecutive quarter, the indicator of the current business environment shows a slight increase.
Reading and understanding reality using traditional means of interpretation is becoming an increasingly arduous task.
Political debate seems removed from reality more than it ever has been, making it difficult to chart a course and plan strategies that look beyond the immediate situation. And not just in Italy. All it takes is a look at the United States or the United Kingdom to realize that politics is speaking a language that is totally new and, at times, still in need of being deciphered.
It is in this climate—which seems to us to be more confused than uncertain—that the findings of the Ambrosetti Club Economic Indicator for the third quarter reflect a slight improvement in Italy’s economic outlook, almost as if to highlight the relative gap between business and political leaders.
Our economic and statistical tool is based on a specially-designed survey that is carried out every three months with the business community of The European House – Ambrosetti (the no. 1 private think tank in Italy and among the top ten in Europe). Taking part in the survey are over 350 businessmen and managing directors of leading Italian companies and multinationals doing business in Italy. Our indicator has shown itself to be highly statistically reliable. The margin of error in the six-month forecast of the quarterly growth trend is 0.1 pp. According to our forecast, the first quarter of 2020 could show a slight tendency for growth compared with the first quarter of 2019 of 0.1%.
Assessment of the current business environment – September 2019: 17.1
For the second consecutive quarter, the indicator of the current business environment shows a slight increase. However, this does not dissipate all worries. It is still too early to assess whether the general trend has been reversed or whether, in financial lingo, we are seeing what is called a dead cat bounce.
In addition, this figure must be evaluated comparatively: 17.1 is a positive value that expresses optimism, but it is less than half of the maximum values registered over a year ago. In short, the trend is towards growth, but it is low.
A similar trend can also be seen in the 6-month economic outlook indicator. The sentiment expressed by the business community reflects the moderate confidence resulting from the end of the “permanent electoral campaign” that has characterized the last eight months and the hope that, finally, the unresolved problem areas in Italy’s economy will be taken on. But again here, the numbers are less than half of their all-time high.
6-month forecast of the business environment – September 2019: 17.1
However, this sense of confidence does not extend to some of Italy’s most serious problem areas, first and foremost that of employment, which, according to our indicator, has “flatlined”—not even a dead cat bounce. There was some enthusiastic talk about the positive numbers registered in recent months (with the employment rate at 59%, an all-time high). However, looking more closely, a number of gray areas emerged that deserve examination.
The main point to note is that included in those employed are workers who have been laid off. In the first seven months of the year, layoffs increased by 18.1% compared with the same period the previous year: 163 million hours in 2019 compared with 138 in 2018. This increase was due primarily to extraordinary layoffs (42.7%), a procedure used during moments of difficulty that are more structural than transient in nature.
Employment remains, therefore, one of the most difficult knots the new government will have to face.
6-month forecast of the employment situation – September 2019: 2.6
The business environment trend is also flat in another area crucial to relaunching the country-investment.
6-month forecast of the investment situation – September 2019: 22.4
The fall of the Italian government raises an area for attention which, we hope, will not go unnoticed. As is known, on June 17th the decree to restart construction projects was passed into law. This impacts on the Contracting Code, in some aspects significantly.
As is normally the case in legislation, the decree is implemented via subsequent regulations which are normally set within 180 days of the law’s passing, in this case, by October 16, 2019.
It is our hope that this issue will be taken on decisively by the new government. Over the last ten years, public sector investment has decreased overall by €130 billion and the mantra of Italy’s no. 1 think tank is: “without investment there are no jobs, without jobs there is no growth and without growth there is no future”. We hope that there will be a future!
This will be discussed in our annual 3-day event in Cernobbio which opens Friday, September 6th and concludes Sunday the 8th.
Managing Partner and Chief Executive Officer,
The European House - Ambrosetti