It is time for us to look again at the economy of Italy. We approach it from our “Girlfriend in a Coma” theme where years and indeed decades of slow, low and at times no economic growth have left it vulnerable. So let us look at the latest economic growth numbers.
In the first quarter of 2022 the seasonally and calendar adjusted, chained volume measure of Gross Domestic Product (GDP) decreased by 0.2 per cent with respect to the previous quarter and increased by 5.8 per cent over the same quarter of previous year.
So the economy had been growing but that is now over and the pattern was not hopeful as services weakened and inventories rose.
The quarter on quarter change is the result of an increase of value added in agriculture, forestry and fishing, a decrease in that of services and a stationarity in industry. From the demand side, there is a positive contribution by the domestic component (gross of change in inventories) and a negative one by the net export component.
The overall theme here is a sadly familiar one. This is because if we look back we see that the Italian economy was struggling even before the pandemic such that the previous quarterly GDP peak was in the second quarter of 2019 at 433.5 billion Euros. The latest number was 428.3 billion or some 1.2% below and getting further away.
Inflation
There was some minor relief in April but the 2022 inflation boom is in evidence.
In April 2022, according to preliminary estimates, the Italian harmonised index of consumer prices (HICP) increased by 0.6% on monthly basis and by 6.6% on annual basis (from +6.8% in March).
Italians may well be focusing on the price of food.
Prices of Grocery and unprocessed food increased by 1.5% on monthly basis and by 6.0% on annual basis (up from +5.0% in the previous month).
Although if you can avoid both food an energy things improve.
Therefore, core inflation (excluding energy and unprocessed food) was +2.5% (up from +1.9% in the previous month) and inflation excluding energy was +2.9% (up from +2.5% in March).
As you can see below the heat is on if we switch to producer prices.
In March 2022, compared with the previous month, industrial producer prices increased by 4.0%. On domestic market producer prices increased by 4.7%, on non-domestic market they increased by 1.7%.
Over the last three months, compared to the previous three months, industrial producer prices rose by 12.7% (+15.8% on domestic market, +3.5% on non-domestic market).
In March 2022, compared to the same month a year ago, industrial producer prices increased by 36.9% (+46.5% on domestic market, +12.2% on foreign market).
Wages
There is an ominous note from the collective bargaining system.
In March 2022, the hourly index and the per employee index increased both by 0.1% from last month.
Compared with March 2021 the hourly index and the per employee index increased by 0.7%.
In the period January-March 2022 the hourly increased by 0.6% and the per employee indices grew by 0.7%
y/y
As you can see the index has been left well behind by inflation with real wages over 5% below where they were last year. It covers a solid chunk of the workforce.
44.6% % in terms of employees and 45.7% in terms of the total amount of wages.
Looking Ahead
The Bank of Italy suggested in January that economic growth would be 3.8% this year and inflation 3.5% but that has long been overtaken by events. On Friday it told us this about the Euro area.
In April €-coin is diminutive (to 0.61 from 0.77 in March).
Believe it or not that is higher than when we were in the “Euro Boom” so I think we learn more from the direction of travel which is lower.
Both the reduction in confidence climates – of the
businesses and, to a greater extent, households – both the raising of the curve of bond yields of the euro area.
It’s April effort for Italy looks extraordinarily optimistic too.
In the intermediate scenario, formulated on the assumption that hostilities will continue, GDP would rise by around 2 per cent in both years; inflation would be equal to 5.6 and 2.2 per cent.
If we switch to the Markit PMI it seems to have lost touch with reality.
The Italian services sector registered another strong
performance during April, with the rates of expansion in
business activity and new work accelerating to five-month
highs amid reports of stronger demand conditions, which
were also reflected in a rebound in new export business.
That is a service sector which was so “strong” in the forest quarter it shrank. Somehow or other they manage to report this.
Nonetheless, the more resilient service sector has allowed the economy to remain firmly on a growth footing, according to the PMI data, as we move further into the second quarter of 2022.
They did at least manage to record the rise in inflation.
Costs faced by Italian services firms continued to rise steeply in April, with the rate of increase easing from March’s peak but still the second-fastest on record.
Meanwhile EURACTIV points out this.
Meanwhile, Italy’s industry has seen a drop in production due to the Russia-Ukraine war, the energy crisis, and tensions over commodity prices.
Industrial production dropped 1.6% in the first quarter of 2022, according to a report released on Saturday (7 May) by Confindustria, the main association representing manufacturing and service companies in Italy. Production even dropped 2.5% in April, when the price of natural gas saw a 698% increase compared to pre-pandemic levels.
Energy Problems
Italy is very dependent on Russia.
Italy currently imports about 29 billion cubic metres of gas per year from Russia.
If Russia decides to cut its gas supplies to Italy, the government has already signed agreements with countries in Africa to diversify its imports.
“Under the deals, 25 billion cubic metres are ensured from 2024 onwards. This means that a large part of the work has been done,” announced Cingolani. ( EURACTIV)
Banks
Whatever happens we find that it hits an Italian bank who are to say the least accident prone.
MILAN, May 6 (Reuters) – Italy’s biggest bank Intesa Sanpaolo (ISP.MI) on Friday cut its profit guidance for the year after setting aside 800 million euros ($847 million) to cover potential losses from its exposure to Russia.
Also there is more from what feels like a never ending story.
ROME, May 5 (Reuters) – Italy is beefing up a 1.5-billion-euro ($1.6 billion) money pot destined for state-owned bank Monte dei Paschi di Siena (MPS) (BMPS.MI), three sources close to the matter said, adding it was still unclear by how much it would increase it.
Comment
Italy must be close to recession if it is not already in one and I struggle to understand what the various surveys think they are recording? So stagflation is rife and if we look at the pattern for real wages there is a real risk of a considerable contraction which is why the government is doing this.
ROME (Reuters) -Italy unveiled a hefty package of measures on Monday aimed at shielding firms and families from surging energy costs as the war in Ukraine casts a shadow over the growth prospects of the euro zone’s third largest economy.
The decree approved by Mario Draghi’s cabinet deploys 14 billion euros ($14.71 billion) of stimulus, ranging from state guarantees on bank loans to a one-off “bonus” of 200 euros for millions of low and middle-income Italians.
This brings us to the issue of debt and bond yields.
In 2022, the deficit and the debt will stand at 5.6 and 147.0 per cent of GDP respectively and will then decrease to 2.8 and 141.4 per cent in 2025. ( Bank of Italy)
That of course is based on its extremely optimistic growth forecasts. Meanwhile the ten-year yield has risen to 3.2% which tightens the screw. Care is needed because this is different to the Euro area crisis when it reached 7%. Because of the level of inflation ( which boosts taxes) Italy can afford this but its people will have quite a cost of living crisis as the stress is particularly on real wages.
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As the Sun becomes more active in Cycle 24, I find myself hoping for a direct hit from an X20 solar flare.
That would be enough to fry our electronics (where is your digital currency then?) and damage, but not destroy our electrical capabilities, such that they would be reparable in a week or so, in most places.
No electronics for warfare in Ukraine, as most modern weapons rely on them.
Perhaps a great reset of personal debt, as bank records unrecoverable. (I have not a penny of personal debt myself, but I feel that many have been “educated” into dismissing the vulnerability of the indebted, & we should remember that lenders are professional, whilst borrowers are amateurs).
No faffing with the electronics of wind turbines or solar panels, back to good old-fashioned gas generation, & we could get our fertilisers back, so that many, many fewer children would go to bed hungry.
No digital IDs so that the establishment can watch, & thus control, every move we make.
Perhaps this new beginning might even precipitate the return of the demand for integrity in the corridors of power.
These are, in my view, the necessary parameters for the Girfriend to awaken, because, make no mistake, the NWO is intent on levelling down Western economies in what it perversely sees as “economic justice,” & Italy may transform into the Sleeping Beauty, & sleep 100 years in vain waiting for the Prince who never comes.
Hi therrawbuzzin
I do know that we have telescopes and other instruments watching this as there was a segment on The Sky At Night not so long ago. Those measuring it were confident we would be able to keep quite a few things going but of course the proof is in the pudding so to speak. We have sent satellites to monitor the sun as well so hopefully we will be better informed.
Also chance is in our favour in that many pass us by….
I think you’re in the realms of fantasy hoping for a return of the demand for integrity, buzz.
The age of the TPTB being responsible and accountable for their decisions and actions is long gone and will very likely never return. Not even the contents of the ballot box seems to make a difference.
Stock markets in bear territory it isn’t just Italy which is suffering stagflation many anaysts see the UK as in stagfalton at the moment. Many analysts think raising rates in the US and UK is the wrong thing to do, its suits the London Square mile but will punish the poorest in the UK with higher inflation in the short term and cost of living crisis which is worrsening, Civil unrest could follow many losw paid are having to pay bills with borrowed money and credit cards, this cannot go on. No one in GOV seems to have a clue what to do at the same time the oil companies have shown massive profits yet again even BP said a one off tax wouldn’t stop their investments they are making that much money. Danny Blancflower predicted the financial crisis in 2009 and he is warning again.
Hi Peter
If we stay with the theme of Italy I found this from Danny;s regular sparring partner to be both interesting and revealing.
Hello Shaun,
The italian energy sector has been under the cosh since Lybia and promised US oil . Now they’re getting the cosh again for RF oil and gas .
I wonder when being part of the EU will enventually sour ?
Perhaps when Germany enters full blown recession and can’t afford to back the project, then we shall see
Forbin
PS: other souces tell me that RF oil sector will shink 17% regardless of sanctions , in other words sanctions will actually help them get more money for whats left
The Monroe Doctrine (for comparison, hence relevance)
https://crgsoft.com/monroe-doctrine-causes-consequences-and-characteristic/?msclkid=d2326807cf9b11ecab13bd7b0fb04801
It’s a moot point whether membership of nato and the monroe doctrine clash?!
Question anyone:
If wholesale Gas has been falling why are the energy suppliers warning of a £900 further price rise this Autumsn which will mean an average bill circa £3,000 which could cripple a lot of families ?
https://news.sky.com/story/cost-of-living-scottishpower-boss-warns-of-another-900-increase-in-bills-and-calls-for-urgent-action-by-july-12609162
Because, I believe, the suppliers have bought forward at much greater cost which they either have to recoup – or go the way of all the others that fell recently. Not sure what happens then? Either no gas because they cannot pay or perhaps HMG steps in.
because of the Green levies and taxes
the Russian war increases have yet to hit so it will be worse when they do ….
going to get interesting , pass the popcorn please 🙂
Forbin
I wonder if it is also the cap which means the suppliers are losing money so having to recoup some of the losses later this year I say that as I watched an interview with a supplier earlier on TV. Whatever the reason some will try and cut their use to save energy by turning off the heat in unused homes but it is no joke being cold and there is only so much you can cut down you need the cooker the tumble drier and washer all which are high energy usage. They say 10 million will be in fuel poverty and that is only an estimate, It is a shocking situation which needs addressing by the GOV who simply haven’t a clue how low pain and pensioners live.
Shaun,
Italians reported to have the best work/ life balance in Europe but will the rest of the EU continue ECB support for Italian banks etc?
the question on my mind is can they if Germany goes down the pan
it’s bad enough to have a wind drought but to cut off you gas supply with out back ups is like crazy
Mind you they have given themselves 18-24 month – about 2024 so I hear
Forbin