The good news is that this year the EU will avoid a recession (and Germany will, after all) and the Italian economy will grow more than expected until a few months ago. On the other hand, the bad news is about inflation, which will remain high, albeit slightly lower than previously anticipated. As a result, the purchasing power of Italian households will also continue to shrink as measures to support price increases, such as the slow rise in wages and the reduction in excise taxes, are coming to an end. This is what emerges from the European Commission’s winter economic forecasts.
Italy’s real GDP in 2022 was 3.9%, slightly above the autumn forecast in the latest Brussels bulletin. A more sustainable growth is expected for 2023: +0.8% compared to the previous 0.3% growth forecast. And that’s despite Italian GDP not having a re-export surplus this year. “In 2024, ‘net exports’ are projected to become somewhat supportive, as exports of goods and services benefit from an improved international trade outlook and still recovering tourism flows,” the Commission writes. “Combined with moderately expanding domestic demand, real GDP growth is projected to reach 1.0% in 2024,” he adds.
So far so good if it wasn’t for inflation. Compared to the autumn forecast, inflation in Italy is expected to still be high and reach 6.1% in 2023. It is expected to fall to 2.6% in 2024 (higher than previously expected). “Household consumption – reading forecasts – remains limited by loss of purchasing power due to the end of fuel tax cuts (late 2022) and other measures to support household incomes (end of March 2023)”. Things will go better in the “second half of the year” when “consumer spending should start rising again” and that’s thanks to Pnrr. However, the ‘stimulation’ of investment will not be enough to compensate for the loss of household purchasing power and its impact on consumption and growth. Brussels explains that the problem is “wage dynamics, which are still under control, given the slow renewal process of collective agreements and the very partial indexing mechanism”. The hope (not only for Italy) is “stability in raw material prices” in 2024.
Considering that the Stability Pact will come into effect next year after the long hiatus that started with the pandemic, hope for the country’s calculations as well: “I don’t wait for the black swan anymore”, because “we’ve had enough”, hence the general escape clause that suspends the Stability Pact
Paolo Gentiloni, European Commissioner for the Economy, said 2020 would be “reasonably disabled by the end of the year”.
Source: Today IT
Roy Brown is a renowned economist and author at The Nation View. He has a deep understanding of the global economy and its intricacies. He writes about a wide range of economic topics, including monetary policy, fiscal policy, international trade, and labor markets.
