In the current phase, characterized by a second wave of the pandemic which cannot be said was unexpected, business sentiment remains pessimistic. This emerges from the Ambrosetti Club Economic Indicator.
One of the most famous maxims attributed to Cato the Censor is rem tene, verba sequentur: Keep to the subject and the words will follow. Once the essential aspects have been determined, configuration follows naturally. The current version—leaving aside rhetoric and entering the field of economics—is:
We are, in fact, in a historic juncture in which public intervention is more than ever necessary and in which, at the same time, credit conditions are more favorable than they have ever been in the past. Interest rates on public debt are at an all-time low and the Pandemic Emergency Purchase Programme launched by the ECB will bring the share of national public debt held in Frankfurt to 23% by the end of the year.
N.B.: This is not an invitation for indiscriminate spending and loading the debt onto future generations. It is just the opposite. The conditions for financing exist, so attention must be focused on how to spend these resources in the most efficient and farsighted way possible. Unfortunately, the examples of inefficiency—or scarce or no planning—are numerous. A figure I find particularly significant is the allocation of benefits to families in recent months. Of the more than €35 billion allocated as emergency income, bonuses to freelance VAT holders and unemployment benefits, 8.8% was issued to families whose income lies among the 10% richest, with the same percentage going to the 10% poorest. Overall, 47% of total resources was allocated to the less-rich half of the population. This represents a distortion in planning that impacts negatively on the efficacy of the measure.
This emerges from the Ambrosetti Club Economic Indicator, an economic and statistical tool based on an ad hoc survey we carry out every three months with members of The European House – Ambrosetti business community, comprised of over 350 CEOs and top management of leading Italian and multinational companies. The index is on a scale ranging from -100 (totally pessimistic sentiment) to +100 (totally optimistic sentiment).
One aspect that should be noted, however, is that even with the massive return of Covid-19, the confidence of the major companies involved in The European House – Ambrosetti Club indicator has not dropped to the levels of the first two quarters of 2020, but is showing signs of slow growth.
Assessment of the current business environment – fourth quarter 2020:
The indicator shows a moderate sign of confidence about the six-month perspective: in March -63.4, in June -63.0, in September -1.8 and, currently, the figure is positive, albeit cautious. Businessmen are expecting, therefore, stabilization and recovery in 2021.
While on the economic front the rebound in confidence for the coming six-month period is significant with a shift in the trend from negative to positive, the employment situation remains pessimistic. The indicator remains at -15.0, just slightly up from -22.8 in September.
The final indicator under examination is expected investments over the next six months. The indicator is positive once again (+2.5) and leads to the hope that there will be a recovery in investments following this year’s downturn.
A recovery in investments will undoubtedly be linked to the evolution of the credit situation, the ECB’s monetary policies and the choices the government makes, both in terms of fiscal policy and legislation. Regarding these last two aspects, we return to my opening premise: a broad-ranging strategy is indispensable and with a long-term perspective. We should not worry (too much) about how to finance these measures. We should start discussing (thoroughly) what to finance, because without a clear vision, every effort is inevitably destined to fail.
We will be discussing this and many other questions linked to relaunching Italy at our regular Finance Workshop in Cernobbio on Friday, November 20th.
Managing Partner and Chief Executive Officer,
The European House - Ambrosetti