The Italian economy proceeds at (scooter) pace

Also in these first 3 months, as in the last quarter of 2016, the overall picture is characterized by high levels of uncertainty on the economic and geo-political front. It’s an uncertainty that has become the “new normality” as many businessmen and top managements of large Italian companies have informed us in these months.

The Italian economy proceeds at (scooter) pace

Uncertainty: the “new normality”

The last survey carried out in December 2016 indicated renewed confidence of Italian businessmen regarding economic activity, employment and investments in our country.

Our sentiment indicators (again in December) reached record levels or very close to all-time highs, with clear improvements compared to the situation at the end of summer 2016. This occurred despite the fact the country had just seen the resignation of the Government following the defeat in the constitutional referendum and a period of political instability could have been expected.

Also in these first 3 months, as in the last quarter of 2016, the overall picture is characterized by high levels of uncertainty on the economic and geo-political front. It’s an uncertainty that has become the “new normality” as many businessmen and top managements of large Italian companies have informed us in these months. For the time being, such uncertainty does not seem to frighten businesses and markets as in the past. We’ve become used to it.

The recent (March 29) start of the procedure for the exit of the United Kingdom from the European Union, 9 months after the referendum, is one of these elements of uncertainty. Another significant factor is that the Trump administration, after his coming into office on January 20, has on more than one occasion expressed its favor with regards to protectionist policies, with potentially substantial impacts on world trade and on the chain reactions of other countries. The head of the national trade council, Peter Navarro, has accused Germany of currency dumping. Donald Trump has refused to shake hands with Angela Merkel. The ambassador designated directly by Trump has affirmed to be against the Euro and against the permanence of Greece and other countries in the Euro. Europe, through the party whips of the largest parties, the PPE and the PSE, has made it known that the designated ambassador is not welcome and could refuse his credentials. This has never happened before. The USA, finally, have also abandoned the Paris climate agreements.

A more reassuring signal, instead, has come from the elections in Holland, a founding member of the EU, where the Liberal Democratic party of the Prime Minister, Mark Rutte, rewon the elections, keeping a due distance from the anti-Europe populist party.

Other important appointments to take place shortly include the elections in France scheduled for April 23 and May 7 and at the end of the summer the elections in Germany scheduled for September 24. A defeat for the anti-EU parties as occurred in Holland could accelerate the processes of European integration and reinforce the economy in the Eurozone, leading to a return to a path of more sustained growth. Vice-versa, we could see the opening up of new crises.

Despite the many elements of uncertainty that characterize the international and national panorama, the Milan Stock Market index has gained, in the first quarter, 6.5%, the Paris Stock Market 5.3% and the Frankfurt Stock Market has recorded an increase of 7.2%, arriving very close to its all-time record achieved in April 2015.

As already predicted in December 2016 by the Ambrosetti Club Economic Indicator, the balance of the first quarter is positive.

The picture that emerges today is that of a substantial maintenance of the levels reached with reference to the current valuation of the business situation, and a slight fall in employment and investments prospects for the next 6 months. The values remain close to record levels, but the slowdown in indicators shows that the recovery is proceeding at a slow pace, as in 2015 and 2016.

In September 2015 we posed (specifically in the pages of the Sole-24 Ore newspaper) the following question: has Italy found the road to recovery … or just the right path? Analyzing our sentiment indicators at the time, and through meetings with the Italian business community, it clearly emerged that the composition and quality of the growth showed how the country, having got out of the recession, was finally back in the driver’s seat somehow. A year and a half later, we can confirm that since then we have been travelling at cruising speed; it’s a constant, but slow (too slow) recovery.

We should point out that our indicators are based on a survey that we carry out for the Ambrosetti Club business community, composed of more than 350 businessmen, CEOs and representatives of company management of the most important Italian and multinational companies operating in our country. Values above zero indicate that the sentiment is positive and an expansion in economic activity is expected; vice-versa, values under zero indicate that sentiment is negative and a contraction in economic activity is expected.

Assessment of the current business situation

The sentiment indicator regarding the current situation of the economy in Italy stands at 30.9 points, very near the all-time record of December (31.7). In other words, the sentiment of December is confirmed, but no improvements have been recorded.

Expectations for the labor market over 6 months

On the employment front, the sentiment has slightly worsened and stands at 9.0. We’ve returned to the average levels in 2015 and, in all events, this indicator is characterized by lower values compared to others, demonstrating a situation which is more fragile than others.

In this regard, the OECD has estimated that in Italy the proportion of the workforce that is under-qualified is around 20% of the total; this is the highest figure in the industrialized countries. In addition to this is the fact that more than 100,000 Italians, mainly young people, leave the country every year to search for work and jobs more in line with their desires and aspirations. This is a situation which is damaging generations of Italians, with an enormous waste of qualified human capital.

Expectations for investments over 6 months

We have registered a slight downturn also with respect to investments: the indicator stands at 25.8, compared to 29.5 in December.

In summary, the results of the Ambrosetti Club Economic Indicator show a stable situation with regards to the sentiment relating to economic activity which stands at just under all-time high levels from the start of the surveys. With regards to employment and investments, on the other hand, there are signs of deterioration, albeit slight.

The Italian business community seems today to have learned to live with high levels of economic and geo-political uncertainty. The values of our indicators show a continuation in the economic growth in progress, but at a pace which is too low to generate a full recovery in the labor market and an all-round recovery of investments by businesses. Unfortunately, for more than a year and a half growth has been proceeding at the speed of a scooter, while incisive and urgent actions are needed to get the economic system moving at a more decisive pace.

Without a strong stimulus to investments and the creation of new jobs, it will be difficult to restart private consumption, which accounts for more than 60% of GDP.

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