Overview

AMBROSETTI CLUB ECONOMIC INDICATOR

If the world economy slows down, Italy stops

For the first time after 14 quarters of consecutive growth, Italy’s economy has contracted for two consecutive quarters: this means that the country is officially experiencing a recession.

If the world economy slows down, Italy stops

Economic forecasts for the world and Europe remain positive, however: for 2019 the world economy is expected to grow by 2.9% and the Eurozone by about 1.9%. Italy, however, remains the slowest coach of Europe (even slower than the UK, despite Brexit, and one of the countries with the lowest expected growth rate in the world): after closing 2017 at +1.6% and 2018 expected to be around +1.1%, growth in 2019 is estimated at +1.2%, as reported in the European Commission’s forecasts.

For the first time after 14 quarters of consecutive growth, Italy’s economy has contracted for two consecutive quarters: this means that the country is officially experiencing a recession. It had already been forecast by the Ambrosetti Indicator, a set of indicators assembled on the basis of ad hoc surveys carried out every three months among the business community by The European House – Ambrosetti (the first private think tank in Italy and one of the top 10 in Europe), contacting over 350 entrepreneurs, CEOs and other leading executives representing the managements of the largest Italian companies and multinationals operating in Italy.

The hint of recession had been hovering in the air for several months already, through the end of 2018, and in fact, after almost four years, the word “recession” had gone back to being one of the most searched terms on Google in Italy. Expectations for the future often condition the present, and many events expected in 2019 concern the public at large and necessarily reflect on their economic expectations.

Economic forecasts for the world and Europe remain positive, however: for 2019 the world economy is expected to grow by 2.9% and the Eurozone by about 1.9%. Italy, however, remains the slowest coach of Europe (even slower than the UK, despite Brexit, and one of the countries with the lowest expected growth rate in the world): after closing 2017 at +1.6% and 2018 expected to be around +1.1%, growth in 2019 is estimated at +1.2%, as reported in the European Commission’s forecasts.

The upcoming European elections (scheduled for May 2019) may be a turning point in the management of Community policy, with the so-called populist parties showing strong gains and the traditional Franco-German axis in difficulty. The future direction of the EU thus appears uncertain, as does the path Italy will take.

This heightened uncertainty affects the ability of the businesses to operate efficiently, and conditions their expectations of growth. The indicators of the Ambrosetti Club show a clear downward trend of sentiment on the part of the business community.

The current assessment of the business environment continues the decline observed in the last quarter, losing over 25 points with respect to June 2018. We remind you that the Indicator operates on a scale from -100 (totally negative expectations) to +100 (totally positive expectations).

Assessment of the current business environment – December 2018: 15.0

N.B.: values above zero indicate expansion/positive sentiment, values below zero indicate contraction/negative sentiment

What is even more worrisome is the decline of the indicator relative to future business prospects which, after holding fairly steady in the second and third quarter 2018, dropped to 7 points (-23 points with respect to the previous quarter, the worst variation since the indicator was established in 2014).

Many macroeconomic figures and market indicators confirm the current negative outlook: Istat has reported that industrial production was down 2.6% in November 2018, compared with November 2017. Moreover, the PMI index, which is a key indicator for the economic performance of the manufacturing sector, reported values for the fourth quarter 2018 that indicate a contraction.

6-month forecast of the business environment – December 2018: 7.0

N.B.: values above zero indicate expansion/positive sentiment, values below zero indicate contraction/negative sentiment

What is the reason for this negative acceleration of sentiment? The main explanation can be found in the absence of clear indications and of a precise line, without which businessmen hold their investment plans in abeyance, placing a damper on expectations for future growth. The political debate in recent months has revolved around a financial maneuver that has been discussed, argued, amended and of which the working details were not known for many months, especially as regards the two main points of the government agreement – the “Quota 100” pension reform plan and the “Citizen’s Income” project. Companies can’t draw up an economic program and business plan on the basis of announcements, they have to be able to know the facts. The futile tug of war with Europe has certainly worsened the economic outlook, due to the prolonged widening of the spread and consequent increase in future interest expenditure.

6-month job market outlook – December 2018: -8.0

N.B.: values above zero indicate expansion/positive sentiment, values below zero indicate contraction/negative sentiment

On the labor market, expectations are also negative, in line with the decrease seen in the last quarter. For the first time in three years, the labor market forecast indicator at six months presents a negative value: the companies are showing signs of pessimism.

This confirms the latest Istat observations, that show a decrease in the last quarter 2018 in the number of employed people (-52,000). The fact that after ten quarters in which the employment figures were improving there has been an uptick in the number of unemployed between the ages of 15 and 64 (+79,000), especially among the younger population, is also troubling.

6-month investment outlook – December 2018: 16.0

N.B.: values above zero indicate expansion/positive sentiment, values below zero indicate contraction/negative sentiment

The sentiment relative to prospects for investment, in line with the contraction expectations highlighted by the other indicators, shows a contraction and does not exceed 16 points. This figure reflects the worry linked to the higher costs of credit despite the reassurance of the ECB, which confirms its intention to maintain the current rates at least until summer 2019 and to reinvest the capital from the securities purchased with the Quantitative Easing policy. The prolonged level of the spread may have a significant impact on the cost of taking out loans.

In short, Club Ambrosetti is starting to show some concern for the performance of the economic situation, from the standpoint of employment as well as from that of investments. The latest forecast published by the European Commission on Italian growth prospects indicates that “Exports are expected to recover and higher public expenditure will support moderate growth in the forecast period”. It is essential, however, that public spending be allocated in a structural measure and in investments tending to support economic growth, not only in the short term, but with a more extended long-term view.


“Without investment there are no jobs, without jobs there is no growth and without growth there is no future”

That is the fundamental paradigm on which The European House – Ambrosetti bases its work, and it is certainly the necessary starting point for any discussion of economic policy.



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