How industrial production will go in Italy. Report

How industrial production will go in Italy. Report

Industrial production continues to recover in June (+ 2.3%) and July (+ 7.5%). Second quarter down sharply (-19.2% on the first), a rebound expected in the third. The quick survey of Confindustria's study center on industrial production

The recovery of activity levels from the lows reached in April and after the rebound in May also continued in June and July. Despite the positive economic situation, the change compared to a year earlier still remains very negative (-13.9% in July). In the second quarter, industrial production is estimated to drop by 19.2% (-8.4% in the first). Domestic demand remains weak while on the foreign front in July there are some slight signs of improvement. The fall in GDP in the second quarter (-12.4%), which is unprecedented in the available historical series, is explained for about a third by the drop in industrial added value while the negative contribution of services representing a high share was strong of GDP. A rebound in GDP and production is expected in the third quarter.

The CSC notes a 7.5% increase in industrial production in July over June, when an increase of 2.3% over May is estimated1. Production, net of the different number of working days, decreased by 13.9% in July compared to the same month in 2019; in June it is estimated to drop by 18.6% per year. Volume orders recorded short-term increases both in July (+ 6.6%) and in June (+ 5.4%). After the low point reached in April, the production dynamics in the Italian industry recorded significant progress, which was expected after the reopening of activities in May.

The robust percentage changes, however important, hide very weak levels: production in July is still about 12% lower than the pre-covid one and in the second quarter overall, the fall in the activity estimated by the CSC is more than double to that recorded by ISTAT in the former (-19.2% vs -8.4%).

This is the fifth consecutive quarterly drop that brings the cumulative change since the second quarter of 2019 to -30%. The contraction in industrial activity explains about 4 points of the fall in GDP in the second quarter (-12.4% on the first, according to preliminary ISTAT estimates); the greatest negative contribution to this trend came from the tertiary sector (which accounts for two thirds of the total added value), a sector that has suffered heavily from the blockade of numerous activities and the limitations of moving people. The change in GDP, which surprised most of the forecasts downwards, was mainly affected by a change in the behavior of households, more prudent in managing budgets and more reluctant to resume previous habits.

The strong uncertainty about times and ways of exiting the health crisis and the repercussions on the labor market (-600 thousand employed from March to June, according to ISTAT) have reduced the purchasing power of many families and increased savings also for the purpose precautionary, thus curbing demand, despite income support measures implemented in recent months. The trend of confidence, although improving since April, also signaled growing fears about the working situation and highlighted the renunciation of unnecessary purchases (primarily those of durable goods).

Uncertainty also led to the postponement of business investment decisions, in a fluid internal and international context and with many clouds on the horizon. In the third quarter, however, there are the conditions for a significant rebound in industrial production (and GDP), explained above all by a base effect (i.e. by comparing with very low levels reached in the second quarter): the cyclical change acquired in July (the one that would occur in the third quarter if the activity stagnated in August and September) is + 21%; while taking into account fluctuations in the dynamics of industrial production in the coming months (which will in any case be less severe than those observed from March to July), an increase in production of between 15% and 20% compared to the second is to be expected. In terms of GDP, this translates into a positive contribution of industry between 3 and 4 percentage points in the summer months.

Despite this recovery, overall 2020 industrial production is heading towards a decrease of about 15% over 2019. As regards GDP, the data released today by ISTAT, which show an acquired variation of -14.3% in the first half of the year, they are more negative than expected and would mechanically lead to a downward revision of the annual trend expected by us in mid-May, which would now be close to -11%, in line with the estimates of the European Commission.

This is a machine translation from Italian language of a post published on Start Magazine at the URL on Mon, 03 Aug 2020 07:59:55 +0000.