Investment at least temporarily affected by a slowdown in the RRF implementation
In the current circumstances, the area more exposed to temporary hiccups is investment. According to the April bank lending survey (BLS), in the first quarter the general level of interest rates was acting as the most powerful drag on borrowing activity, with businesses needing to fund inventories and working capital more than new investments.
A potential counterbalance might come from the push on investments coming from the European Recovery and Resilience Facility (RRF). A delay in the disbursement of the third tranche, due last January, is possibly causing some concerns, inducing extra prudence. However, a quick solution to the current impasse and, even more relevant, the much- awaited disclosure by the Italian government of its revised plan, could give businesses more visibility on viable projects and potentially revitalise investment action.
The pending ratification by Italy of the European Stability Mechanism reform remains a source of friction in the relationship with the European Union. Prime Minister Giorgia Meloni’s claim to make it part of a comprehensive deal encompassing the revision of the RRF plan and the reform of the Stability and Growth Pact seems a bit illusory and overly ambitious. A piecemeal approach would have likely allowed the Italian government to have a better say in the reform of the Stability and Growth Pact, which will be finalised by year-end.
All in all, we expect that the Italian economy will manage to post marginally positive growth in the middle quarters of 2023, mainly thanks to services. If that is the case, building on the strong carryover effect of the first quarter, then an average GDP growth of 1.2% in 2023 seems a reasonable base case call.
The Italian economy in a nutshell (% YoY)
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