Economic Bulletin No. 2 – 2021

The quarterly Economic Bulletin (twice yearly until 2006) provides information on economic developments in Italy, within the more general context of the international and euro-area economy, looking at the most important aspects: the real economy, the national accounts, banking, and the financial markets. Topics of special interest are examined in greater depth in boxes within the main text.

The global outlook improves but uncertainties remain
The ongoing vaccination campaigns and the support of economic policies are being reflected in the improved global outlook; in the United States, the Biden administration’s fiscal stimulus plan has raised expectations for growth and long-term yields. In the short term, however, uncertainties remain about the course of the pandemic and its impact on the economy, due to delays in rolling out vaccinations and the spread of new variants.

It is vital to preserve favourable financial conditions in the euro area
Economic activity in the euro area has been affected by a new increase in cases of infection; despite a temporary rise in inflation, the outlook for prices continues to be weak. The ECB Governing Council decided to step up securities purchases under the pandemic emergency purchase programme, to prevent the transmission of the higher yields on international markets from translating into a premature tightening of financial conditions in the area, which would not be justified by the current economic outlook.

In the early months of the year, economic activity remains largely stable in Italy
In Italy, the economy has proven resilient but the rise in the number of cases has taken a toll. In the fourth quarter of 2020, the decline in GDP, while significant, was smaller than expected. According to the available indicators, economic activity was virtually stable in the first three months of this year: a stronger performance in industry was accompanied by the still weak performance of services.These estimates remain subject to a high degree of uncertainty linked to the effects of the pandemic.

Investment and consumption are expected to recover gradually
According to our surveys, firms are planning to resume investment in the remaining part of the year. The households interviewed by the Bank of Italy reported a gradual increase in expected consumption, but the saving rate remains high; the bulk of the savings accumulated in 2020, concentrated among the households least impacted by the pandemic, will not be spent in the course of this year.

Foreign trade recovers
In the fourth quarter of 2020, Italian exports of goods grew in line with world trade. They returned to levels just below those preceding the pandemic, offsetting the fall in international tourist flows, which contracted again following the recovery observed during the summer. Foreign demand for Italian securities strengthened; after the current account recorded a surplus, Italy’s positive net international investment position increased.

Total hours worked have declined but employment has risen
Following the social distancing measures decided in the autumn, the number of hours worked in the last quarter of 2020 declined again and recourse to wage supplementation increased, but to a much lesser extent than during the first wave of the pandemic. The number of persons in employment increased, but it remains well below what it was prior to the public health emergency. In the first two months of the year, payroll employment was stable. Labour market conditions suggest that wage growth will continue to be low in the coming months.

Inflation turns positive thanks  to the developments in energy prices
The change in consumer prices, which had been negative in the final months of 2020, reached 0.6 per cent in March, influenced by the developments in energy prices. Core inflation returned to lower levels after being driven up in the first two months of the year by the postponement of the seasonal sales. Producer price pressures are modest: households and firms have revised their inflation expectations upwards, although they remain low.

Financial and credit conditions remain relaxed
Conditions on the financial markets continue to be relaxed. The upward pressure on Italian government securities yields stemming from the US markets has been countered by the decisions taken by the ECB Governing Council and by the reduction in the sovereign risk premium. Lending to firms continues to expand at a steady pace, reflecting above all continued strong demand for State-guaranteed loans: supply conditions are accommodative.

The Government adopts new support measures
Given the new interventions to limit infection, the Government has adopted further support measures, especially for households and firms. Additional resources have also been allocated to strengthen the vaccination campaign and to other actions within the health system to combat the pandemic. According to official assessments, the measures raise the deficit for 2021 by almost €32 billion overall compared with the current legislation projections. Other interventions may be decided in light of the Government’s new request for authorization by the Parliament to raise net borrowing. An update on the public accounts is given in the 2021 Economic and Financial Document, approved on 15 April.

The National Recovery and Resilience Plan is being finalized
Under the Next Generation EU programme, the Government is drawing up the National Recovery and Resilience Plan. According to the initial indications, the resources available amount to almost €192 billion, of which around €123 billion in the form of loans; a share of about 13 per cent will be made available as pre-financing, following the Plan’s approval by the European Council.

Expansionary measures can support growth
The better than expected performance of GDP in the fourth quarter of 2020 has had a positive carryover on growth for this year. According to the leading forecasters, GDP could expand by more than 4 per cent in 2021, with a significant recovery in the second half of the year, aided by the global context. A scenario of a return to sustained and long lasting growth is plausible, though not without risks; it assumes that support to the economy will continue and that the measures being introduced under the National Recovery and Resilience Plan will prove effective. The outlook hinges above all upon the progress in the vaccination campaign and upon a downward trend in COVID-19 cases.

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Economic Bulletin No. 2 – April 2021