Confindustria sees black in the last quarter of the year. Until the third quarter of 2022, the Italian economy withstood the high cost of energy beyond expectations: in total, GDP increased (+3.9% acquired for 2022, +0.5% in summer ). The expansion of tourism was the main driving force. The industry continued to hold its own in terms of production, faced with very high costs, with great heterogeneity between sectors, but the tight situation on margins is not favorable to investment. The (limited) decline in non-energy commodity prices and government intervention to (partly) offset higher energy prices have helped. Construction has slowed down. Total bankruptcies increased only slightly, Confindustria’s November economic flash report points out. But there is a risk of a fall in the fourth quarter: the quality indicators are generally negative; the price of gas has remained high for too many months; the resulting inflation (+11.8% per year) erodes family income and savings and will have a negative impact on consumption; the rise in interest rates intensifies, another ball and chain on business costs, warns Confindustria.
Strong gas bounce
In addition, the price of gas in Europe rebounded rapidly in November (89 EUR/MWh on average, 118 the last figure), after the sharp drop from the peaks recorded in October (72 EUR on average); this trend reflects the mixed news on Russian gas supply, but also the difficult and protracted EU negotiations on a possible price cap. Oil remains expensive, but below its highs, continuing to hover around USD 90 a barrel since September (vs. USD 123 in June): global oil extraction has been recovering since August as consumption has slowed and inventories of the OECD having increased.
Industrial production will not hold up in the fourth quarter
Industrial production recorded a pronounced decline in September (-1.8%), but in the third quarter average, it fell only slightly (-0.4%). The manufacturing industry held up well (-0.1%): this figure, read together with the rapid rise in inventories in the sector since April, suggests that some companies anticipated their production, before the rise in oil prices. energy is actually paid for (when pre-crisis contracts expire), reads the November economic flash. This could be the prelude to a sharp drop in the coming months. And the qualitative indicators deteriorated, paving the way for a bigger negative sign in the fourth quarter: the PMI in October fell even lower into the negative zone (46.5); judgments on orders continue their downward trend (-9.6 in November); and manufacturing business confidence remains depressed. At the same time, the slowdown in construction was confirmed, which was signaled by the sharp drop in site indicators. Production in the sector increased little in September (+0.2%) and fell (-2.2%) on average in the third quarter, after six consecutive quarters of strong expansion.
Italy consoles itself with tourism
The rebound in Italian tourism continued in the third quarter: in August, spending by foreign travelers exceeded pre-crisis values for the first time and reached +11.4% in September (compared to -1.4% in July). The rise in spending on services accompanied the recovery in consumption, but retail sales of goods also progressed, at a sustained pace integrating higher prices (+1.2% in the quarter; +2.1% for food products). But for the fourth quarter, the signals are mixed: in October, the services PMI fell (46.4 against 48.8), in November consumer confidence recovered.
Slowdown in Eurozone GDP
With regard to exports, on average in the 3rd quarter, the dynamic was robust (+2.7% in value), but also due to the rise in prices (+1.1% in volume). On the other hand, the indications on foreign manufacturing orders, which were very weak in October, were negative. Looking ahead, weak foreign demand, particularly in Europe, will weigh on uncertainty and inflation. Indeed, after a still positive third quarter (GDP +0.2%), although slowing down, the indicators show a deterioration in the economic outlook for the euro zone. On the other hand, galloping inflation in the euro zone (+10.6% per year) prompted the ECB to raise its interest rates (to 2%). Although this may partially contain inflation (by dampening price expectations), it risks worsening the scenario.
The cost of credit for companies is likely to increase by +6.8 billion in one year
In Italy, the Btp rate (the yield reached 4% in November, compared to 0.97% at the end of 2021) is historically crucial in determining the cost of bank financing and, therefore, the rate that banks apply. business (and household) credit. In fact, observes Confindustria, the increase has already begun to affect the rates paid by companies in Italy, which until September increased by almost one point (from 1.74% to 2.59% for SMEs; from 0.76% to 1.69% for large companies) and seem destined to increase further. In current value, taking into account the renewal of loans at less than one year but also the share of variable rate transactions (higher from 2020 than in previous years), it is estimated that the cost of business credit will increase of +2.3 billion in one year, which risks becoming +6.8 billion if the rise in interest rates fully follows that of the construction industry. The increase in credit naturally also affects Italian households: the Taeg rate for consumer credit has already risen from 8.08% to 8.83% in September, the average rate on mortgages from 1.78% to 2.65%.
Liquidity erosion, more expensive and drip-feed lending
After recovering in 2021, the level of corporate liquidity in Italy has been deteriorating rapidly since the start of 2022. The decline is most significant for small and medium-sized enterprises. The qualitative indicator is not at 2020 lows, but the rapid decline is worrying, Confindustria continues. And the demand for loans is increasing, albeit with difficulty: both business loans are increasing (+4.4% per year in September; peak of +8.7% in 2020) and the share of companies that do not obtain them (7 .8% in the manufacturing industry in Q3, 4.5% at the end of 2021). The dynamics of loans to households also accelerated in 2022, although to a lesser extent (+4.2% in September).
Debt burden doubles
Italian companies should, however, ease the debt burden, first by extending the repayment term of existing loans, instead of taking on more debt. “Moreover, to the extent that the need for liquidity, induced by high energy prices, leads to additional indebtedness, this occurs at increasing rates on new transactions: the debt load therefore increases two times, warns Confindustria, and will absorb an increasing share of business turnover, if no action is taken on energy prices and if official rates continue to rise, as announced. At the same time, the same applies to the budget of families who, faced with higher installments for mortgages and other loans, find themselves with fewer resources for the consumption of goods and services”. ()