declining trade tensions and European industrial production at deadlock,
Italian economic policy is uncertain and the improvement suggested by the
economic indicators might disappear in the absence of further structural measures
to support growth.
are the main forecasts included in the December 2019 Quarterly Economic
Despite 4th quarter 2019 contraction in industrial activity, which was predicted by Prometeia’s nowcasting models, GDP growth will close at +0.2% (compared to +0.1% forecast in September), thanks to the Italian National Statistics Agency’s data revisions, while the 2020 estimate has been revised slightly downwards. Political and economic uncertainty are increasing: majority disagreements and unresolved issues such as Ilva and Alitalia are the main causes. Support for growth in 2020 will come not from a real expansionary fiscal policy, but from a reshuffling of budget items. Households will benefit from the redistributive effects of certain new measures (such as the reduction of the tax wedge and some transfers) and from the Citizenship Income (Reddito di Cittadinanza). The latter, which will be fully operational in 2020, increased transfers in 2019 by €3 billion compared to the Inclusion Income (Reddito di Inclusione). A slight boost, in addition to consumption, will come from investments: tax credits, increased deductions for ecobonuses and restructuring. Not until 2022 will GDP growth recover (to +0.9%), and will not reach pre-crisis levels for all the main macroeconomic indicators.
US-China talks have restarted talks which has alleviated global tensions, with financial markets betting on agreement between these two great powers. However, there are still conflicts involving other countries which are contributing to keeping world trade growth relatively low: Prometeia estimates a recovery in the last months of 2019, but this year will close in a condition of substantial stagnation (+0.3%, +1.4% in 2020). On the economic policy front, the US and China are running out of room for manoeuvre: the US federal budget deficit will reach 4.2% of GDP at the end of the year and debt is expected to exceed 110% in 2020. In China, total debt has reached 300% of GDP.
In Europe the situation is different: industrial production is falling, but there are several countries, such as Germany, that have ample fiscal space to stimulate growth. Germany has planned a reduction in public savings of 0.4 percentage points in 2020, not so much via increased investment, but rather through a mix of aid and tax reliefs for households and businesses.
Central banks: since mid-September, the FED has intervened by injecting into the US interbank market, liquidity of over $240 billion. Temporary interventions have been announced, but they leave open the question of US monetary policy evolution. In Europe, the incoming President Lagarde has confirmed the ECB's monetary policy guidelines, reiterated the importance of completing banking union and capital markets union along with the need for a more significant contribution from fiscal policy. A review of the monetary policy strategy will be concluded in 2020.
Prometeia analysed whether American duties on products imported from China have favoured Eurozone exports. The main Eurozone countries have seen an increase in exports since the beginning of 2019, but this cannot be traced back to the "trade diversion" effect: the European products that have increased the most were not replacing Chinese products subjected to higher duties. Rather, it seems that these products reacted to different shocks such as fear of higher US tariffs in the future. Only a few products from the mechanical and automotive sectors have benefited significantly from trade diversion effects: in this context, manufacturing specialization has benefited Germany and Italy in particular.