Savings and tourism are helping GDP for now, but without the Recovery, growth collapses

MILAN – The government Melons struggles to “ground” the Pnrr, there is great concern in Europe about this fact, but at the moment there is no reaction either on the financial markets or in the judgments of international rating agencies. How can this fact be explained? All economists explain that there is a direct correlation between the 190 billion that Italy can spend by 2026 and future economic growth, incorporated in the growth estimates of the gross domestic product (GDP).

Without this increased spending, however, growth forecasts would instantly worsen and therefore markets would turn for the worse. This is not happening because, for various different reasons, the Italian economy is doing better than expected, much better than Germany, which has entered a recession in the last two quarters. Try to explain the reasons for this resilience Lorenzo Codognovisiting professor at the London School of Economics and founder of his consulting firm LC Macro Advisors: «Italy has benefited more than other countries from the drop in gas prices, the rebound of China since the end of 2022 and the reduction of dysfunctions in international value chains – explains the economist -. Furthermore, in Italy households and businesses are less indebted and therefore are less affected by the rise in interest rates and have savings to spend. Investments also contribute positively NexGenEu, because it’s a lot of money. And probably also the Superbonus has drugged the performance of the construction sector, at least in the past».

Therefore, one of the reasons for the good performance of the Italian economy at the moment is linked to the fact that during the pandemic people saved more and are now pouring this money into greater expenses that support economic activity. «The cumulative savings in the Covid phase and the subsequent interventions due to expensive energy represent a fiscal stimulus that has not been fully used – confirms Codogno -. It was placed “in the refrigerator” and is now being gradually pulled out for consumption and investment, counterbalancing the effects of monetary tightening.

There is, therefore, a double track: the higher interest rates are making their negative effect felt on industrial and manufacturing activities, which are very present in countries such as China and Germany, but also Italy. Our country, however, has the advantage of having other positive variables available, such as greater savings, stimuli against expensive energy and also a good part of the services that are attracting. “A recession is underway in the manufacturing sector and China, which is the factory of the world, is feeling the effects, while the United States lives on services which are recovering strongly – he observes Andrea Delitalaadvisory manager of Pictet -. Germany is slowing down and Italy should do so too, but it has the support of NextGen, whose effects come a little at a time, not all at once, and of tourism which is attracting a lot».

Urso: “Pnrr essential for growth and debt reduction. We will focus on green projects”

by our correspondent Paolo Mastrolilli

04 June 2023

Let’s summarize: the Italian economy, despite the poor performance of industry, is currently supported by consumption, tourism and the first effects of the money spent with the Pnrr which, if they continue, will lead Italy to grow much more than the others European countries. This film is already in the forecasts of analysts. «I have had more positive estimates for Italy for a long time than many other analysts. I see GDP growing at 1.3% this year and 1.6% next year and the following year – Codogno declared -. It is clear that these estimates also incorporate the substantial public spending envisaged in the Pnrr for at least one percentage point of GDP per year. If this were to fail, it would be a problem ».

But then, if the incapacity of the Italian government to spend the Pnrr money prevails, what will happen? The resources involved are so large that, even if not fully utilized, they will still give a positive boost to growth. The important thing is to take at least non-repayable grants, to access which you need to make all the required reforms and implement them appropriately. «Not taking them would be a crime – admits Codogno – while even if all the money from the subsidized loans were not spent, the problem would not be dramatic. The important thing is to spend it well to have lasting growth, otherwise it’s better not to spend it because it would only increase the public debt».

In short, seen from abroad, the Pnrr is a boon that has fallen on Italy, not exploiting it would be harmful and would have repercussions on the markets. Precisely in a phase in which, as Delitala observes, «the disinflation process is underway and we have good visibility for 2023. The prices of Fed funds tell us that the rate hikes in the USA are over, indeed, they already incorporate a cut in 2024».