In March the Italian economy is in “sharp decline”, with the conflict in Ukraine that “amplifies the hikes of energy and other commodities, and increases the scarcity of materials and uncertainty. Adding to the effects of the contagions, this reduces GDP in the first quarter of 2022 and stretches a shadow on the 2nd: the trend in April is compromised and the prospects are gloomy “: the study center of Confindustria in the flash conjuncture of April. Furthermore, the rise in interest rates “is a problem” because “it will gradually increase interest spending”, and therefore “Italy will have less budget space to implement a new expansionary maneuver”.
Confindustria explains that in March “the erosion of confidence in manufacturing companies, which has already been underway since the end of 2021, intensified”. The PMI in the sector fell further, while remaining in the positive area (55.8 from 58.3). After the volatility of January-February, “the impact of the conflict on production is expected to deepen in March: this means a significant decline in the average for the first quarter, which contributes a lot to the decline in GDP”. The services, which are “stalled”, are also bad. The PMI indicates a slowdown in March (52.1 from 52.8) and business confidence is down (99.0 from 100.4).
Due to contagions and uncertainty, the household mobility (for leisure time -16.6% in the 1st quarter from pre-Covid), keeping the demand for services weak. This is added to a still partial recovery of tourism up to February (-15% travel by foreigners to Italy). Exports are also weak, while before the conflict it grew “well beyond pre-Covid levels” (+ 5.8% in December-February over the previous three months). Much of the increase was due to the rise in prices on foreign markets (+ 2.8%). Sales in the main EU and extra-EU markets and manufacturing sectors (but motor vehicles are still weak) were growing.
“The first effects of the war in Ukrainehowever, they are already visible in foreign manufacturing orders, which fell sharply in March. Furthermore, the dynamics of world trade, already flat at the beginning of the year due to the decline in trade in Asia and the increase in Europe, has negative prospects according to the PMI on global foreign manufacturing orders, which fell in March (48.2 from 51.0 ) “, underlines the research center. The scenario is negative for the whole European economy which, more than the US, is affected by the conflict in Ukraine, which has increased the price increases of commodities, the scarcity of materials, uncertainty, and created new restrictions on exports. For this, according to Confindustria, “there would be a need for expansive measures “.
A move that Italy will not be able to afford, because with long-term market rates rising, interest spending will gradually increase as new issues take place at higher rates. Therefore, “Italy will have less budget space to implement a new expansionary maneuver in public finance. Given the high debt, policies will have to be prudent also to avoid further leaps in the spread. Furthermore, if the rise in the BTP is transfer to the cost of bank deposits and also increase the cost of credit, this would determine a further increase in costs for businesses and families, already hit by the high-energy cost. This would penalize both investments and private consumption, weighing down the Italian GDP “, Confindustria concludes.
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