Brussels misses the analysis of low growth

Brussels misses the analysis of low growth

What the European Commission says and does not say when reviewing the growth estimates of EU countries. The in-depth study by Giuseppe Liturri

The EU Commissioner for Economic Affairs, Paolo Gentiloni, has published and commented on the usual spring report with the economic forecasts for the EU and the Eurozone and, since when you think about numbers in hand, the space for propaganda tapers to zero, the principle reality has begun to make its way even in Brussels.

The picture is bleak, in terms of photography of the present and prospects for the future. We are heading towards the perfect storm with our bare hands and all the EU can do is find the scapegoat in the Russian invasion of Ukraine, closing the way to the hypothesis of a budget gap that according to Gentiloni would be " imprudent ". For Italy, support policies are "certainly possible, but with caution", that is, by financing them with additional revenues. A straight leg entry a few hours after the declarations of the PD secretary, Enrico Letta who, last but not least, had instead expressed an openness towards the hypothesis of the deviation, intended as a last resort in order to avert the risk of recession.

According to the Commission, the remedy for the purchasing power of employees, whose wages are eroded by inflation, is simply to put their hand to the savings accumulated during the pandemic. All accompanied by the essential premise, repeated several times, that these are forecasts characterized by extreme uncertainty and that – in the most serious scenario, if the flow of gas from Russia were suddenly interrupted in the coming months – the growth of Eurozone would be canceled with the stroke of a pen, falling in 2022 from 2.7% to 0.2% and in 2023 from 2.3% to 1.3%. If anyone still needs an explanation for the EU stammering – underway since May 4 – about the sixth package of sanctions against Russia that could involve oil and its derivatives, here is the explanation. The growth of this year and a large part of that of 2023 would be wiped out. The rest is talk.

But let's go in order. What is surprising about these forecasts, which come only three months after the winter ones, is the drastic reduction in growth prospects. That 2.7% announced yesterday was only 4% in February and, by 2023, 2.8% has now become 2.3%. A sin of optimism made when the prospects were already bleak, which the Commission is paying dearly today with this unprecedented downward revision for its size.

But there is more. The growth that the Commission is able to predict today is essentially the result of the rebound compared to a still slowed 2021. Without this effect, 2.7% would be reduced to a very modest 0.8%.

These data reflect a basic scenario, in which the geopolitical tensions will not end before 2023 and, above all, that the energy product markets will not be affected by further serious disturbances compared to the current situation. But it should be noted that the prices of these products incorporated in the forecasts are those expressed by the futures markets, and this questionable method has already cost dearly to the ECB technicians who have blatantly admitted that they have systematically wronged their forecasts in the past years.

Looking at Italy, the downward revision is even more sensational. Just a few weeks ago, the Def predicted growth of 3.1% and 2.4% for 2022 and 2023 respectively, which yesterday the Commission cut to 2.4% and 1.9%. Again, if anyone needed official confirmation that the numbers on which the government based its economic policy for 2022 as recently as April 6 were written on water, here is the Commission. provided.

The only room for maneuver on the front of a truly anti-cyclical fiscal policy is that provided by the Recovery and Resilience Facility (RRF). The famous "rain of billions", which has been talked about since July 2020 and which, according to the latest data, has made payments for 97 billion (between advances and first installment), of which 46 in favor of Italy. Sums irrelevant from a macroeconomic point of view for the economies of EU countries.

Inflation is expected to peak at 6.9% in the second quarter of this year and to settle on an annual basis at 6.1% in 2022 and 2.7% in 2023. There is no doubt that the increase in prices of energy products is at the basis of most of this increase, but it should not be overlooked that the Commission now admits that even “core” inflation (that purified from food and energy products) will be equal to 3% over the next two years. In short, the so-called “spillover” effect (relapse) is now in operation and what was considered a transitory phenomenon only a few months ago has been consolidated and transmitted to all sectors. Only wages show no reaction, thus leading to the loss of purchasing power.

What strikes and arouses enormous perplexity is the cause, according to Gentiloni, of these results: in essence it is all or almost the fault of the war, which has come to exacerbate a picture made up of tensions on the prices of raw materials and energy products and difficulties in the reconstruction of supply chains, with a consequent decline in the confidence of families and businesses.

The Brussels technicians are convinced that these factors would have vanished if the war had not come to aggravate them. Not a word about the fact that these tensions, according to many commentators, were not only not transitory (and this was clear already in autumn 2021) but originate in some imprudent choices made by the Commission precisely with regard to the ecological transition.

To complete the gloomy picture, Gentiloni reminds us that all of this is subject to the risk of an imminent increase in interest rates, even higher than expected, which could lead to a serious fall in the value of financial and real estate assets.

But it is all, or almost, the fault of the Russian invasion. Who can, put hand to their savings. The others eat brioches.

(Updated and expanded version of an article published in the newspaper La Verità)

This is a machine translation from Italian language of a post published on Start Magazine at the URL on Wed, 18 May 2022 05:30:29 +0000.