Work, over half a million jobs at risk: the alarm

In the second half of 2022 the general economic situation is very complicated: the economy turns downwards. This the photograph taken by Confindustria, which in its forecasts for the next few months sees black. In the’Italian industry materializes what is called a “fall“, Explains the Study Center, although exports are proving resilient and services continue to rise for now.

In the second quarter, European GDP grew again, but energy prices and inflation at the highest levels (+ 9.1% per annum in August) are likely to abruptly halt this growth, curbing household consumption, which has been the main driver of the economy at least until today. The confidence of industrial companies continued to decline in August, especially in France and Germany, putting investment in crisis.

The price of gas has never been so high, and inflation and interest rates ready to shoot even higher herald a crisis that will be really difficult to sustain, especially after almost three years of pandemic, which have bent the economy and put thousands of families in difficulty.

Record inflation erodes household income and threatens consumption, protected – in part and not for much longer – by accumulated savings. The ECB responded to high prices and a weak euro by raising rates, which will give a further recessionary impetus.

The rise in gas prices since August has gotten out of controlin the wake of supply cuts from Russia. The resilience of the industry is on the ropes, after too many months of the impact of expensive energy on company margins: investments will suffer the most.

Gas price out of control

For what concern gas, the price in Europe soared to 236 euros / mwh on average in August – with a peak at 330 – and remains at 205 in September, from 171 in July, thus well above the previous highs of March. Indeed, the Russian gas supply has been repeatedly reduced and the markets are pricing in the potential scarcity.

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Conversely, oil dropped to $ 100 a barrel in August and 92 in September, from 112 to July, due to the worst expectations of world growth, even if it remained expensive, above the values ​​of the beginning of the year.

Increase in rates

Due to the surge in inflation and the weak euro exchange rate, the ECB decided the second rate hike in September to 1.25%, with important effects on mortgages also in Italy (here how the installments change). This reinforces the trend of rising sovereign rates:

  • 10-year Bund at 1.62% on average in September, from -0.09% in January
  • BTP at 3.84% (from 1.24%).

Thus the spreads with the Bund have also increased:

  • in Italy we recorded the highest increase (2.22 from 1.33, close to Greece), also due to the government crisis leading to the vote on 25 September
  • in Spain to 1.18 (from 0.75)
  • in France to 0.60 (from 0.30).

The feared increase in the cost of credit in Italy seems to have begun: 2.01% in July for SMEs (from 1.74% in January), 1.01% for large companies (from 0.76%).

Industry down

Italian industrial production showed a recovery in July (+ 0.4%), confirming the resilience of Italian companieswith a better dynamic than that of Germany and France, but is nevertheless expected to decline in the third quarter (-1.4% acquired).

The qualitative indicators relating to the industry have worsened: in August, the PMI fell even further into negative territory (48.0), signaling a recession. The opinions on Istat orders are also down, anticipating lower demand. In construction, the signs of deceleration continue, after the long phase of expansion: the trend in construction sites already started is seen to decline sharply in the third quarter.

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In addition, business confidence declined further.

Services on

A dare a little bit of hope, on the other hand, is the service sector. In particular, tourismwhose recovery also supports the industry (here all the tourism numbers in the coming years).

Spending by 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 again indicated expansion, but at a very slow pace (50.5). Therefore, according to Confindustria forecasts, services will continue to improve also in the 3rd quarter, albeit more slowly.

Resilient export

In contrast to the national level is exports. Italian exports of goods and services continued to grow in the 2nd quarter, albeit with less strength, recording + 2.5% (it was + 4.7% in the 1st quarter). World trade in the 2nd quarter also grew again (+ 0.8%), but little, with a non-homogeneous increase between areas and with widespread increases in unused production capacity (here we talked about the strange case of extra virgin olive oil of Italian olive, which risks disappearing in Italy while recording excellent export performance).

The driving force is above all services, with + 6.6%, but in July also the growth in exports of goods did well, with + 3.8% at constant prices, thanks above all to sales of pharmaceutical products and of oil refining.

What will happen in Italy at work and GDP

Italy is resisting for now thanks to greater mobility and tourism, and a slight growth in construction. Employment also holds, but difficult to predict how long.

The biggest problem is that, if expensive gas were to persist in 2023, up to almost 600,000 jobs would be at risk in Italy. Confindustria simulated two situations.

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In case the gas price is 235 / mwh – the average value for August -, the impact for the Italian economy, compared to a starting point in which the price of gas is held at the average of 99 euros for the first 6 months of 2022, is estimated at a lower GDP growth of 2.2% and in one loss of 383 thousand employees.

In case the gas price is 298 / mwh – the average level expected from futures – GDP would collapse by 3.2% in the two-year period 2022-2023, e the jobs that would be lost would be as much as 582 thousand.

How the industry is doing in the rest of the world

As for the rest of the world, the picture seems uncertain for the US. American GDP in the 2nd quarter fell for the second consecutive time (-0.1%, after -0.4% in the 1st), writes Confindustria. In July, however, industrial production grew by 0.6% and in August various activity indicators confirmed positive levels (ISM at 52.8, Chicago Purchasing Managers at 52.2).

Among the emerging markets, everyone is doing well, except China, which is rapidly losing competitiveness. The Chinese manufacturing slows down, both due to energy rationing linked to the summer heat wave, and due to the continuation of the anti-Covid measures that continue very rigid.

In India, production and new orders are growing at the fastest pace in nine monthsthanks to the reduction of infections and the moderation of raw material costs. Manufacturing in Brazil also did well, and, surprisingly, in Russia, where the manufacturing marks a record in sales since 2019 (be careful, however, to think that the sanctions are not working: here you will find the true effects of the sanctions and what is happening in Putin’s Russia).