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The economic forecasts of the International Monetary Fund arrive and are going to inevitably provoke discussion, because they raise many questions for Italy and to Europe: not only the signs of recession they are profound, but in our country they seem more serious to the Monetary Fund than the government estimates in its latest Update Note (Nadef); As for Europe, and in particular the euro area, the loss of ground in relative terms is beginning to be seen both towards the United States and towards China (as Corriere wrote in the newspaper of October 1). As it happened in the Great Recession of a decade ago.
The crisis: I lost the equivalent of 400 million full-time jobs worldwide
The naturally very severe Covid-19 recession around the world and the IMF’s World Economic Outlook recall the International Labor Organization estimates: compared to 2019, the equivalent of 400 million jobs have been lost to full time. worldwide in the second quarter of this year. The recovery of confidence and activity after the first six months of the partial year almost everywhere, while only industrial production seems to have returned in August to the levels of a year earlier. The Monetary Fund expects one for this year contraction of the world economy by 4.4%, somewhat less serious than the analysis of six months ago (-5.2%), but it remains an unprecedented fact since 1945. A strong rebound in international activity is expected next year (+5.2%), provided that the virus does not continue to circulate at its current intensity.
The crisis and its effects on Europe
Most surprising is the diversity of economic reactions to the pandemic. According to the IMF,Euro zone will see its product fall 8.3% this year, almost double the United States (-4.3%). The China then, the only one among the twenty main economies of the world, even registered an expansion (+ 1.8%). Even if we look at the two-year period 2020-2021 as a whole, the great recession of the coronavirus marks a new setback for the European economy in the other two main commercial and productive blocs on the planet. From two years to the end of 2021, the United States should come out with a 1.2% contraction in production; China with a very strong growth of more than 10%; By the end of 2021, on the other hand, the product of the euro zone would still be 3% lower than at the end of 2019.
This analysis shows the relative technological backwardness of Europe compared to the United States and China and the fiscal and monetary stimulus, which was much greater in America than in the old continent. The European decline in the international economy, already noticeable in normal times, becomes so flagrant in the phases of greatest tension. After 2008 and after 2020.
Germany’s holding company, Italy’s collapse
Europe also has strong internal diversification, once again along fault lines very similar to those that had already been opened in the financial crisis and then in the euro crisis (2008-2015). Thus, the German economy is suffering a decline of 6% this year, according to the IMF, but is expected to recover more than two thirds of the ground lost in 2021 and can return to its pre-crisis levels already in the first part of 2022 a year and a half, in a relatively short time, economic normality could return to Germany.
Instead, seen from the IMF a completely different situation from Italy, which this year should lose 10.8% of the product in real terms (Nadef estimates instead a Pil a -9%), to later recover less than half of this lost ground next year with a 5.2% rebound (Nadef estimates a + 6% change). Therefore, it seems to the economists of the Monetary Fund that, in the period of two years, Italy will not lose three points as the government thinks, but further. five income points, exactly like Spain, while for France the accumulated loss in the biennium would be 3%. The divergence, therefore, is twofold: Europe lags behind the other major world economies and the most fragile countries are behind the more solid ones in the euro area. Once again, with this great recession, the script from a decade ago seems to be repeating itself.
Post-Covid Recovery and Italy’s Obstacle Course
Even longer-term projections reveal some skepticism on the part of the IMF about Italy’s ability to quickly recover from the 2020 collapse and transform its production system in the name of efficiency, thanks also to the Recovery Fund. The Italian growth forecast for 2025 is just 0.9%, the lowest in the entire euro area. In this case, a very fragile demographic situation weighs, with few births, a rapid aging of the population and a low contribution from active immigration.
Public accounts
Finally, the Fund’s evaluations of public accounts are very different from those of Nadef, especially with regard to public accounts. Where the Italian government for this year sees a public deficit of 10.6% of the product and a debt of 158%, the IMF projects a deficit of 13% and a debt of 161.8% (it would be the highest ever high in history from Italy). It is possible that the government’s estimates are more accurate, because the State General Accounting Office has a more immediate pulse on what is actually being spent of the approximately 100 billion aid allocated during the year.
The IMF’s skepticism about the scenario of a fall in debt in the coming years, driven by sustained growth, is striking. For the IMF the Italian public debt next year it will be 158.3% of production (higher than what the government sees this year) and again 152.6% in 2025 (higher than what the government sees in 2023). Therefore, the background note on Italy is worrying, evident among Washington economists, that the current crisis may create damage in Italy that is very difficult to absorb in a short time. Regarding this, a scenario of rapid debt reduction thanks to sustained growth does not seem credible to the IMF (as drafted in Corriere on October 6). For this reason, the Fund does not ask for a tightening of the budget, also given the very precarious conditions of employment and of the entire production system.
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