What the IMF estimates conceal on the Italian (and Russian) economy
The International Monetary Fund has published the updated economic forecasts. Giuseppe Liturri's analysis
It thundered so much that it rained. The International Monetary Fund has published the update of its economic forecasts and Italy shares with Germany the unenviable record of seeing the negative sign in front of the change in GDP expected for 2023. A -0.2% for us and – 0.3% for Germans. The fall is impressive, both compared to 2022 and, above all, compared to previous forecasts.
If we were to look at the Update to the September 2021 Def update – when most of the tensions on energy prices were already underway, but everyone believed the legend of the "transitory" phenomenon – growth for 2022 and 2023 was expected to be respectively equal to 4.7% and 2.8%. After 12 months, 2022 could close at around 3.2 / 3.3% and 2023 has plummeted to 0.6%, in the optimistic forecasts by the Draghi government. Because the IMF downsizes it to -0.2%. In a few months, almost 3.5 points of GDP evaporated over two years. If we think that the positive effect of the PNRR on GDP should be 3.6 points at full capacity in 2026 compared to the base scenario, twelve months of short-sighted economic policies were enough for us to destroy the equivalent of what we should (conditional d ' obligation) to accumulate painstakingly in 5 years, thanks to investments financed by the EU.
The rate of fall is even more impressive when compared with previous IMF forecasts, released in April and July. So at a time when the recessive factors linked to the war in Ukraine and the exceptional rise in the prices of energy products were already at work. Compared to April, the growth of 2023 undergoes a cut of 1.9 points and compared to July by 0.9 points. In other times, a correction in the forecast of nearly one point in three months would have been comparable to an earthquake. Today, it slips almost unnoticed.
If that's the big picture, the details are even more interesting. When we go to see what determines this GDP retreat in 2023, we discover that public spending – which we remember is a component of GDP together with private consumption – will do its part to ballast the country with a drop of 0.5%. We are always and still there: after 20 almost uninterrupted years of negative contribution of the state budget to growth and three years of positive contribution (2020, 2021 and 2022) we are plunging back into austerity. Also confirmed by the decreasing trend of the deficit / GDP from 5.4% in 2022 to 3.9% in 2023. The structural deficit / GDP, son of that statistical shame that is the output gap that the Commission still insists on measure, will drop from 5.7% to 3.6%. The IMF expects that the next government will obey the containment objectives set in the Stability Pact which is suspended only in words, but which only spares us the shame of the infringement procedure.
In this context, a faint ray of light came on Tuesday from the industrial production data for August, up 2.3% compared to July and 2.9% compared to August 2021, marking an increase well above expectations. However, this is a figure which, due to its volatility, should be observed over longer periods and the variation from the June-August quarter compared to the March-May quarter is equal to -1.2%. However, the robust figure for August offers us the hope that GDP in the third quarter – which will be announced on 31 October – will close with a variation around zero and the recession will thus be postponed for a quarter. In short, the industry has already stopped and in the summer quarter, we should have remained standing thanks to services and tourism in particular.
But if our economy and that of the eurozone as a whole proceed towards recession, seeing the growth prospects worsen month after month, Russia's GDP shows surprising data. Yes, we are talking about the country whose economy should have been destroyed by the eight sanctions packages launched by the EU. They told us the story that we would have to suffer at first, but then we would have bent the Russian economy by preventing it from financing the war effort. The infamous example of the "off air conditioner" that would bring us peace.
Well the numbers tell us that our prospects, as observed, are getting worse and the Russian ones, incredibly, are improving.
Russian GDP will drop by 3.4% and 2.3% respectively in 2022 and 2023, but the sensational aspect is that the IMF was forced to better correct the forecasts for 2022 by 2.6 points compared to July and even 5 points compared to April. For 2023, the July forecast was improved by 1.2 points. Then a disconcerting reality emerges: in April and July the IMF sensationally overestimated the short-term damage inflicted on the Russian economy by the sanctions, which does not seem to yield even over a longer time horizon, considering the non-transcendental -2.3% of the 2023. After all, the current balance of payments data are clear and show that in the third quarter the Russians – despite having practically reduced their gas supplies to the EU to less than a quarter – achieved an exceptional surplus of 52 billion dollars, against the record of 77 billion in the previous quarter. To get an idea of the exceptionally high level of these latest data, it is sufficient to observe that in 2021 the surplus had fluctuated around 20 billion per quarter. In 2022 it will amount to 243 billion dollars, doubling compared to 2021.
A mountain of money which, although fed more slowly in recent months, is the real weapon in the hands of Russia. Clamorously and irresponsibly created before and strengthened later, by the ideological drunkenness of a too rapid transition policy from fossil fuels to renewables. To which was added the suicidal muscular display in front of his main gas and oil supplier.
Double mistake: first the moral hazard – led by Germany – of tying hands and feet to a single unpopular overseas supplier and then that of wanting to get rid of it in a few months, as if it were the supplier of fruit and vegetables to the local market.
As of today, the result is that we don't know if and how we will get through the next few winters and Russia sits on a stack of money kindly honored by the EU.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/stime-fmi-economia-italia-russia/ on Thu, 13 Oct 2022 05:01:46 +0000.