The Italian Economic Situation in 2020 | FASTENER EURASIA MAGAZINE
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The Italian Economic Situation in 2020

 by Marco A. Guerritore
Editor in Chief of Italian Fasteners Magazine

 

It has now become normal practice at the end of the year to try to predict what the future may hold.

2020 was a very particular year that will be remembered for one thing – the Coronavirus pandemic.

Almost the entire world has been infected by this evil virus which has caused severe negative consequences to public health, the economy and society as a whole. Covid-19 has had a detrimental impact on the market. The reduction and very often total closure of production activities has caused many economic indicators to fall, thus highlighting all the symptoms of a dangerous recession.

In Italy, the most economically critical period was recorded in the first four months of 2020, which corresponded to the first lockdown period. An easing of restrictions in the following months led to a promising economic recovery.

With the arrival of winter and a resurgence of the virus, new – although less restrictive – lockdown measures were implemented, resulting in a general slowdown in the economy.

Let’ take a broader look at the effects of the pandemic on the Italian economy.
On 31 October 2020, the Bank of Italy announced that Italy’s public debt, i.e. the debt contracted by the Italian government to meet its own needs to which is added the interest on previous debt, hit an all-time high of 2,587 billion euros. In fact, at the end of 2019, the nation’s public debt amounted to just under 2,420 billion euros. 

Consequently, the Debt/GDP ratio at the end of 2020 also rose to maximum values (159.9%). However, the debt-to-GDP ratio is expected to fall to around 153.6% in 2021, thanks to a foreseeable recovery in production activities.

In 2020, the entire manufacturing sector, in various ways, was affected by the lockdown. After the summer break, characterised by a weak economic recovery, it slipped into a new recessionary phase.

According to ISTAT data, the monthly seasonally-adjusted index rose by 0.2% on a cyclical basis only for intermediate goods, which are those goods that can be used only once in the production process. 

On the other hand, the consumer goods index decreased (-4.0%), which is a logical consequence of the reduced activity in the distribution chain. The indices for energy (-3.6%) and capital goods (-0.6%) were also negative. However, the manufacture of rubber and plastic products (+2.9%) and transport equipment did well, a recovery that compensated for a significant drop recorded in previous months (+9.3%).

According to data provided by the European Commission, private consumption in Italy fell by 10.9% in 2020 due to the lockdown, but a recovery is expected in 2021 of about +7.3%.

The collapse in demand for private consumption associated with a widespread state of insecurity is the cause of a substantial drop in investments of 14.2% which should however rebound by around 13.0% in 2021.

The contribution of exports, after the large drop in 2020 (-13.0%) should turn positive in 2021, (the forecast is +10.5%) in line with the trend in world trade. In terms of the labour market, unemployment will rise to 11.8% in 2020 and then settle at 10.7% during 2021. 

At this point, the question is: “What is the forecast of Italy’s socioeconomic situation for the near future?”

The famous economist J.K. Galbraith once said: “The only function of economic forecasting is to make astrology look respectable.” Perhaps there is too much pessimism in the famous economist’s statement, although there is a grain of truth in it. However, there are mathematical and statistical techniques that can be used to produce reliable economic forecasts.

The greatest margin of uncertainty generally lies in numerical forecasting, or rather in quantitative forecasting. Forecasts of economic trends are perhaps more reliable and interesting.

In order to have a certain degree of validity and reliability, any type of forecast needs to be periodically revised and recalculated according to the changes that may occur in the variables considered.

That said, there is nothing to prevent us from formulating hypothetical forecasts regarding the Italian economic scenario.

The pandemic is currently the biggest unknown factor because it has amply shown how it is capable of affecting not only the Italian healthcare industry but also the entire socioeconomic fabric of the country.

Right now, the greatest hope lies in the efficacy of the vaccine, but it will take months before the entire population is made safe, so the current state of unease will continue for some time.

But will everything go back to normal once the storm has passed? Many people are doubtful.

Moralisation of the epidemic and ambitions to reform the capitalist system – writes Alberto Mingardi in an article for “Economia e Politica,”– wager that Covid-19 will leave its mark on us. The pandemic will impoverish us, so we will be able to afford fewer trips, fewer dinners out, and to change our cars less frequently than we want. We will probably be inclined to save more than in the past, as is almost always the case for those who have suffered a very strong shock.”

The current state of insecurity in the various social strata can be seen by analysing the main economic indicators such as consumer confidence, which has fallen sharply, and the index of a firm’s propensity to invest, which is negative for the near future.

On the other hand, the strong growth in bank savings by citizens is confirmation of a general mood characterised by fear and uncertainty about the future, which is becoming more and more widespread, resulting in a lower propensity to spend.
This begs the question: “Is the Italian economy slowly freezing up because of the virus?”

It depends on the business sectors. For example, the jobs most affected are those of services (e.g. cafes, bars, restaurants, hotels, tourism), clothing, energy and construction, while other sectors appear not to have been affected by the crisis at all.

One of the better performing sectors is that of industrial goods, i.e. products that are sold to other companies, which in turn use them in the production of goods they manufacture.

According to people operating in this field, in 2020, the performance of their work was very positive, with orders remaining at satisfactory levels, as did the value of turnover.

So what are the reasons for this deviation from the national trend?
Perhaps it is the replenishment of stocks by customers, which were depleted during the pandemic, or purchases made for fear of a resurgence of the Coronavirus with the consequent suspension of production activities, or it could be the early effects of the Recovery Fund, or the important role played by exports.

The truth probably lies in correct marketing actions, which have consciously or unconsciously induced operators in the sector to favour a globalised clientele that has been able to divert its commercial activities from a market in recession to a more effervescent one.

The most enlightening case is probably that of Volkswagen which, in 2020, achieved a profit of 10 billion euros, a figure lower than that achieved in 2019, but still higher than expected, thanks to an increase in sales recorded in the second half of 2020. The pull of VW was certainly helped by China, whose strong demand for cars compensated for the downturn VW suffered in the European and US markets, where the pandemic has been and continues to be very active.

VW’s suppliers should therefore have felt the effects of the pandemic to a lesser extent. And just like VW, many globalised companies have been able to cushion the impact of the crisis on their suppliers by virtue of their dynamic operations. 

Undoubtedly, with the pandemic, the manufacturing world finds itself in a difficult situation, which must be tackled with determination. A good entrepreneur is one who knows how to face and overcome moments of difficulty with the appropriate tools, which are mainly: marketing, information, management technique and above all entrepreneurial intuition.

In conclusion, these times call for the entrepreneur to be able to react positively to negative situations, in a word: resilience.