WASHINGTON – «It is time to reduce debt and replenish financial reserves. For all countries in the world, including Italy.” The suggestion comes from Fabio Natalucci, deputy director of the Monetary and Capital Markets Department of the IMF, and co-author of the Global Financial Stability Report published yesterday.
The IMF cuts Italian growth estimates to only +0.7% for 2025. Lagarde: “Towards a rate cut if there are no shocks”
What are the risks we run?
«The process of disinflation has continued globally, both in advanced and emerging countries, and there are growing expectations that the world economy can achieve a soft landing. This is one of the reasons why financial markets have shown a lot of enthusiasm. That said, there have been higher-than-expected inflation figures in some countries, the United States in particular. So the markets have readjusted their forecasts on the level of rates. One of the short-term risks is that if central banks do not lower rates as much as markets expect, or even the disinflation process stops, stock and bond market valuations will be readjusted significantly. The second short-term danger concerns the commercial construction sector. Globally, prices fell by 12%. In the US alone, there are around a trillion dollars in refinancing this year, with an estimated gap between available funds and needed funds of around 300 million. Then there is the problem of the banks’ exposure. So there are long-term risks. One is the growth of debt. The debt-to-GDP ratio continued to rise too high.”
The big names in the economy in Washington for the IMF and World Bank meetings. Italy awaits S&P’s judgment
edited by the Economics editorial team
In the Def just published by the Italian government, the debt increases. Why is this a problem?
“Beyond a specific European country, what matters is the difference between real rates and the real growth rate. If the real rate is higher than the real growth rate there is a sustainability problem, because you are accumulating more debt than how much you are able to pay. What countries can do is increase growth potential. In particular invest in sectors that raise productivity. If you don’t raise productivity it is much more difficult, because you have to work only on real rates, what which forces you to have primary deficit surplus for a long time.”
How should we act?
“To adjust the sustainability of the debt, a careful fiscal policy is needed. It is important that it is done gradually, linked to the individual conditions of the countries. However, at a general level, a review of the public accounts is needed, so that the debt continues to be sustainable. That is the numerator. Then it is important to increase the country’s potential growth. It means investments in technology, in the green economy, which can help raise productivity. Otherwise, if you have to operate only on the numerator, only on the debt, it becomes much heavier.”
The Italian government expects growth of 1%, the IMF 0.7%. What impact can this difference have?
“It is important for all countries, not just Italy, that there is attention to public finances, to keep the debt in a sustainable condition. And at the same time invest in public spending projects that push upwards productivity”.
The government has focused on privatization: is it enough?
“Without going into details, the important thing is to have structural reforms. In general the recipe has always been structural reforms in the public sector, which help the efficient allocation of capital.”
Why do you recommend replenishing buffers?
“It is always easier when growth is positive, because there is fiscal space. You can do it in a more gradual, more intelligent way, continuing investments that increase the country’s potential income. If you do it when you are in contraction, when you are forced by the markets, it becomes more dangerous and more expensive.”
#investments #green #economy #tech #return #growth
– 2024-04-17 14:30:48
