Bloomberg economists believe Italy will make it. Although the country is heavily dependent on Russian gas and oil, in the base scenario of a long-lasting war in Ukraine, GDP is expected to drop from 6.6% in 2021 to 2.2% this year. This, considering a scenario of hyper inflation of 2022 to 9.3% and a reduction in rates from the current -0.5% to -0.25%.
It is a better forecast than that made a few days ago by Confindustria. In a scenario in which “the duration of the war is a crucial variable”, and assuming that uncertainty and tensions end or reduce from July, the Confindustria Study Center has in fact estimated growth in 2022 cut to + 1.9% “with a broad downward revision (-2.2 points) “compared to the estimates of last October” when all forecasters agreed on a + 4% “. Considering the + 2.3% of growth acquired due to “the excellent rebound of last year”, Italy “would thus enter a technical recession albeit of limited size”, with a drop in GDP of 0.2% in the first quarter and 0.5% in the second.
Bloomberg’s pool of economists, again in the base scenario, expects the ECB to raise the cost of money in 2023 to 0.25%, when inflation should slow down to 1.8%, allowing Italy to grow to 2.4%. In 2023, rates are expected to be 0.75%, inflation almost zero (0.2%), and Italian GDP again well set (3.4%).
And even if we were to see a worsening of the international situation, Italy would be able to avoid the recession. In this case, economists expect a cost of living to rise by 10.8% by 2023 and a GDP in Italy reduced to 1.2%, with a cost of money fixed at the current situation (-0.5%), which from 2023 would normalize to -0.25%. Also in 2023, GDP should settle at 1.1% with inflation at 3.6%, while in 2024 prices are expected to slow down (-2.6%) and GDP, on the other hand, is tonic (5 , 6%).
There is also a hypothesis of de-escalation with crude oil at 80 dollars a barrel in 2022, but “it seems unlikely that it will materialize”. In that case, “the spare capacity and the fiscal stimulus plan of Prime Minister Mario Draghi would allow Italy to return to growth rates well above this year’s trend”, writes Bloomberg. Economists cite a GDP of 3.8%, just below the 4% expected before the war in Ukraine broke out.
The base case, of a long war of attrition, predicts oil prices at 120 dollars per barrel and gas rising to 130 euros per megawatt hour. If instead there were a worsening compared to the current situation with an intensification of the clashes and the looming threat of an interruption of energy supplies, crude oil is expected to double compared to current values ​​at 200 dollars a barrel during the second quarter, before to return to $ 150 in the third and fourth quarters and gas prices touch nearly 200 euros per megawatt hour. The economic contraction is seen “particularly profound in the second half of 2022”.
Italy’s dependence on Russian energy sources emerges from 48% of electricity production using natural gas compared to the Eurozone average of 23%. Furthermore, the direct consumption of gas by households is particularly high in Italy, the economists recall, and constitutes 33% of the euro area energy consumption basket.
To this we must add the bills paid by the families on which the distribution costs and taxes weigh. Bloomberg estimates that the energy component represents 54% of the average euro area bill in February and 65% in Italy. The Italian government has committed about 20 billion to alleviate the depressing effect on businesses and families. According to Bloomberg, it is more likely that the burden on households alone “could be three times that figure”, a calculation that is based on an analytical approach applied to the euro area as a whole. (All rights reserved)
