Overview

AMBROSETTI CLUB ECONOMIC INDICATOR

IS THE POSITIVE THRUST IN ITALY ALREADY OVER, OR ARE WE JUST EXPERIENCING A PERIOD OF ADJUSTMENT?

What are the prospects for Italy?
2017 was a positive year. The growth rate in Italy was 1.5%, the highest since 2010, and employment was at an all-time high of 23.1 million, although the overall unemployment rate remained at 11.2%.

IS THE POSITIVE THRUST IN ITALY ALREADY OVER, OR ARE WE JUST EXPERIENCING A PERIOD OF ADJUSTMENT?

The year 2017 ended with a 2.5% growth in GDP in the Eurozone, the highest rate in over a decade and the third highest growth rate ever registered since the introduction of the Euro (only 2006 and 2007 saw higher rates of growth). The growth was solid and higher than the expectations of a few months ago, although not uniform and variable among member states. If economic growth were to continue at the rate of the last quarter of 2017 and the preliminary forecasts for the first quarter of 2018, these projections would indicate 2018 closing at +2.7%.

In terms of employment, 2017 closed with 154.8 million people employed in Eurozone countries and 234.2 million in Europe—both record values since Eurostat began gathering employment statistics.

The highest growth in ten years and record employment, despite the uncertainty over Brexit that has lasted for nearly two years, the six months required in Germany to form a government, international geo-political tension, the increased risk of a return to protectionist policies, and currency and financial stability of markets outside of Europe. Not to mention the political uncertainty in Italy.

Within this context, a not-yet fully positive aspect is inflation which, despite ECB policies, is still far from the 2% target. In February it only reached 1.2% in the Eurozone and 0.5% in Italy. This gap indicates that the recovery is not yet in full swing and that the growth in consumption—the no. 1 component of GDP in all European countries—is not that high.

The positive side, however, is that this value, if it continues in the future, weakens the stand of the hawks on the ECB Governing Council, who are pushing to increase interest rates as early as 2019. In fact, the only statutory goal the ECB must pursue is that of an inflation rate that is less than, but near to, 2%. Until the average inflation rate in Europe is not around 2%, the ECB will be hard-put to raise interest rates.

The Federal Reserve, on the other hand, has already begun a process of raising interest rates and volatility in the financial markets coincided with a rise in long-term yields in the US, while investors fear that monetary policy may tighten more rapidly than expected. In the US, stronger growth is expected, boosted by Trump’s significant tax stimulus that was approved last December, and the raising of the public spending ceiling enacted in February.

On a general level, the global economy continues to grow at a fast pace, in many cases at higher levels than foreseen only a few months ago and it is forecast that this growth will continue in 2018.

But what are the prospects for Italy?

2017 was a positive year. The growth rate in Italy was 1.5%, the highest since 2010, and employment was at an all-time high of 23.1 million, although the overall unemployment rate remained at 11.2%.

However, growth is not measured solely in terms of oneself but, more correctly, it should be measured in comparison with others. If Italy wants to return to pre-crisis levels, to close the gap built up over years, it must grow more than others and not just more than yesterday. Comparison with other European countries is not reassuring and indicates that the gap has continued to widen. With its +1.5%, Italy is only ahead of Greece with +1.4%. Spain grew by 3.1%, Portugal by 2.7%, Austria by 2.9%, the Netherlands by 3.2% and Germany by 2.2%.

The findings of the Ambrosetti Club Economic Indicator for the first quarter of the year offer conflicting and inconclusive signs, for which it might be better to “wait and see”.

Forecast indicators for future sentiment regarding employment and investment are slightly lower than the last survey in 2017 and have returned below the levels of last September. However, assessment of the current business environment remains at its all-time high level. In other words, our indicators remain either at the historic maximum levels of December, or just slightly below. No improvement in the sentiment of our business community was seen. These findings represent confirmation of the positive nature of the current situation, with some cause for concern in the coming months. Is the positive thrust in Italy already over, or are we just experiencing a period of adjustment?

As is known, our indicators are constructed on the basis of results obtained by a specific survey we conduct every three months for the Ambrosetti business community which is comprised of over 350 businessmen, CEOs and representatives of top management of leading Italian companies and multinationals operating in Italy.


Assessment of the current business environment – March 2018: 44.0

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

In January, the sentiment indicator regarding the current economic situation remained at the all-time high of 44.0 points reported this past December, approx. 13 points higher than the March 2017 survey.

In terms of the employment picture, however, the findings indicate a slowing to 18.7 points, down from December’s 21.1 when the indicator registered a record high. The figure for the first quarter of 2018 remains the third-highest since the surveys began (in March 2013), although all of us are aware of how crucial employment recovery is in Italy, especially youth employment.

If these results are confirmed in the next survey, government and institutions will have to act even more concertedly and committedly in this area. This indicator is the synthesis of the prospects of the Italian business community and entrepreneurs regarding the future of the job market in Italy, so if from their point view as those who manage and run the companies in which jobs are created, improvement is not expected, it is a clear sign that a change of pace is required. We know that the percentage of NEET—young people aged 15 to 34 who are not studying, working or attending training courses—in Italy is 19.9%, compared with 11.9% in France, 11.1% in Great Britain and 6.7% in Germany.


6-month job market outlook – March 2018: 17.7

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

In terms of investment, sentiment has fallen from the record level of 34.4 to 31.3. Once again, if this decrease were to continue in coming surveys, it would not be at all positive. Currently, the level of investment is still 20% lower than in the pre-crisis year of 2008. The investment indicator is very important because businesses invest when they foresee and believe that the economy will grow.


6-month investment outlook – March 2018: 31.3


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

In addition, investments have a positive effect on growth which, in turn, has a positive effect on employment and opportunities for young people and talent.

Conclusion

In terms of the assessment of the current business environment, our indicators show levels in-line with those of December, previous to the elections. The uncertainty tied to the current situation does not, at the present time, seem to have produced either a negative or positive impact, although some cause for concern for the near future has emerged.

Italy must find the leverage points to take advantage of this favorable economic, financial and monetary situation, even more so than it has to-date, while setting the goal of closing the gap with other European countries in terms of growth, employment and productivity.



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