30 October, Il Corriere
Since last Friday, with the positive rating of Standard & Poor’s, also Italy is invited to the party. After a series of fourteen downgrades of its rating between and 2011 and April 2016, Italy obtains the first improvement in its rating regarding the solidity of its public debt by an international agency.
Other countries that suffered from the recession have been participating in the party for a long time, to be honest. Spain and Portugal already had four promotions by the rating agencies on which the ECB base itself for its loans. Ireland has even registered eleven advancements. S&P, which last Friday promoted Italy, is known to be the strictest among the agencies and its judgement was close to “non-investment” or “garbage”.
Despite these warnings, it would be superficial to underestimate the change. Even more so, after the announcement that the ECB will halve the rhythm of purchases of new State bonds. For Italian Treasury bonds, this means a drop in the demand by five billion per month (net of the reinvestment on over 300 billion Italian bonds already bought, when these will expire). Certainly, perhaps because investors were expecting a harsher measure by the ECB, the Italian Treasury bonds have reacted even with a slight decrease of returns.
There is only one issue left that worries the fund managers of the Italian public debt: they find hard to tell how much they can trust this recovery, even though it was the factor that made the promotion by S&P possible.
Some aspects are certainly surprising in a positive way. The growth per person in 2015 started to surpass that of France (+0.8% accumulated over a two-year period) and in 2015-2016 the growth was faster than that of Germany (+0.3%). The fact is that the expansion is still on the overall slower than that of the other main countries in the Eurozone and it depends on the Italian demographic crisis: there are fewer people and therefore fewer consumers. Births are at their minimum, emigration is high, and it almost cancels the stream of people immigrating to the country.
Other factors show that a certain dynamism is back. In 2016 Italy surpassed France for what concerns the export towards non-EU countries and in the first half of the year the trend has been confirmed: Made in Italy sold for 128.9 billion worldwide, while Made in France was 124.8. In the first six months, the turnover of the Italian export has risen by 8% over the previous year, while the German has by 6% and the French one for 4% and these rhythms will last till the end of 2017.
Something is brewing in the country, but no one knows what exactly is. Despite the good performance, the export is still growing less than the import, therefore international commerce will continue subtracting points to the economic growth. In fact, looking beneath the surface, it looks like Italy, despite the recent promotion, is not showing signs of recovery of the efficiency, productivity, and of all the essential factors that make an economy solid and dynamic.
OECD shows that the Italian total productivity (the sum of work, technologies, instruction, management, and institutions) has dropped by 3% since 2005, setting close to zero since the beginning of the recovery and it even decreased a little in 2016. In the last three years, Italy has grown by 3.4%, even though the average income has stayed practically the same (according to the OECD). On the contrary, the GDP produced by each worker has risen in France, Germany, Spain, United States and in the eurozone in general. This means that Italy is still not reporting signs of the efficiency of the system and it continues to be delayed in its growth in comparison with the competing economies. The current expansion is only due to the increase of occupation, thanks to the support of ECB and the good state of the global economy which lifts the banks. Italy is still vulnerable.
The country tenaciously survived the first phase of the debt crisis, when consumptions dropped. Then it survived the second phase when the export resumed, and the third, which sees a recovery of the imports. The fourth and last phase to exit the financial crisis for good is when the economy starts to grow at good pace, faster than the debt does, due to the interests that must be paid. Italy is not at that point. And a reform of pensions is not the way to achieve it.
Source: Il Corriere
Translator: Cristina Ambrosi