What will be the effect of gas on the Italian economy
What emerges from the Flash Conjuncture report of the Confindustria Study Center
'' The price of gas has never been so high, inflation and interest rates rise even higher: this is the beginning (and at the same time the synthesis) of the latest Flash Conjuncture of the Centro Sudi Confindustria / CSC. The context – continues the report – is very difficult in the second half of 2022: the scenario for the economy turns downwards.
The fall materializes in Italian industry, although exports are proving resilient and services continue to rise for now. Rising gas prices and the risk of scarcity bring Europe to its knees, which is heading for a sharp slowdown. In the US, the picture is uncertain, only China is doing badly among the emerging markets ''. The Chinese manufacturing, in fact, is slowing down, both for energy rationing related to the summer heat wave, and for the continuation of anti-Covid measures. In India, production and new orders are growing at the highest rate in nine months, thanks to the reduction in infections and the moderation of raw material costs. The drop in costs keeps Brazilian manufacturing in positive territory and also returns momentum to the Russian economy, where manufacturing has set a record in sales since 2019.
The report then goes on to comment on the various aspects of the September economic situation which is still underway.
The abnormal increase in gas prices and the risks of shortages on volumes have a heavy impact on Italy and the other European countries, which import gas. By holding back the other economies, this penalizes Italy even more, through less exports.
Increased energy costs
Even assuming different alternatives on the prices of energy raw materials (gas, oil, coal) for manufacturing, the impact of energy costs, in the worst scenario, expected by the markets, would end at 10.2% in 2022 and at 13.7% in 2023, more than tripled compared to the pre-crisis 3.9%.
Impact of the jump in price.
On the basis of some simulations, the impact for the Italian economy is estimated in a lower GDP growth of 2.2% and 3.2% cumulative in the two-year period 2022-2023, and 383 thousand and 582 thousand less employed.
Gas shortage risk
In recent months – underlines the CSC – supplies from Russia have dropped, at times, to a marked extent, causing the price of gas to rise. If these flows were to stop completely, given the approach of winter leading to the peak of consumption, Italy and the other European countries could also have problems on volumes. In the event of a block since October, considering the alternative sources to Russian gas already in place, those that should be available by the first months of 2023, the acceleration of storage recorded until August, in Italy there would be a significant shortage of gas (10.9 mm3, between the 4th quarter of 2022 and the 1st 2023), but much lower than the estimate before the summer. Using the strategic reserve (4.5 bcm), a gap of 6.4 bcm (8% of consumption) would be reached. According to the Italian emergency plan and the recent regulation at EU level, the shortage could still have a significant impact on parts of the Italian industry (which needs a total of 9.5 bcm), causing closures and a drop in added value. A reduction in energy consumption, especially with measures to limit cooling and heating in buildings, could almost cancel the gas shortage. For the Eurozone, the ECB estimates that in a negative scenario, which includes the gas blockade from Russia, it would fall into recession in 2023 (-0.9%).
Also record inflation
Energy tensions drive inflation up in Italy (+ 8.4% per year) and in the Eurozone (+ 9.1%). On these extreme values the ECB cannot do much, as energy prices depend on external factors, outside its range. For Italian families – underlines the CSC -, inflation reduces the purchasing power of income and accumulated savings; this could lead, the report speculates, to postpone the consumption of other goods and services.
What to do?
According to the CSC, there is an urgent need to mitigate energy price increases or their effects. Firstly, with compensatory interventions for families and businesses, which however are very expensive, sustainable for limited periods. Italy – recalls the economic report – is already among the European countries with the largest budget intervention for energy. Regulatory interventions are therefore needed, such as the allocation of part of the electricity produced by renewables to businesses, at a fixed and more moderate price; the reform of the electricity market, uncoupling the price of electricity from that of gas; the imposition of an EU cap on the price of gas in Europe, to act directly on the heart of the crisis. At the same time, the CSC suggests, we need to reduce energy dependence on other (more renewable) countries and reduce national consumption of gas and electricity, as we are starting to do. But we must hurry – is the recommendation of the CSC, along all these lines, if we do not want to resign ourselves to stagnation, or worse.
The CSC reports the resilience of certain sectors.
The services date back
The recovery of tourism in Italy also supports the industry: the spending of foreign travelers has now closed the gap from pre-Covid: -0.9% in June (it was -21% in April). The higher spending on services (+ 5.3% in the 2nd quarter, but the gap still -4.5%) drove consumption: especially shopping away from home, thanks to the end of the restrictions. In August, the Services PMI (PMI is an economic indicator consisting of monthly reports and surveys, collected by private companies in the manufacturing sector). has returned to indicate expansion, but at a very slow pace (50.5). Therefore, the rebound in services is expected to continue more slowly in the third quarter.
Resilient export
Italian exports of goods and services continued to grow in the 2nd quarter (+ 2.5%), although with a more moderate trend (+ 4.7% in the 1st), supported by the acceleration in services (+6, 6%). In July, the growth in exports of goods continued (+ 3.8% at constant prices), supported by sales of pharmaceutical products and those of oil refining; nonetheless, the PMI foreign orders indicated a fall. World trade in the 2nd quarter also grew again (+ 0.8%), but little, with a non-homogeneous increase between areas and widespread increases in unused production capacity; Furthermore, the global foreign order PMI has been signaling a contraction for several months.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/economia-italia-conseguenze-crisi-gas/ on Tue, 20 Sep 2022 12:03:29 +0000.