It is time for us to take a look at Italy again and see what has happened to the honeymoon period for its new Prime Minister Mario Draghi? With the rate of turnover of Prime Ministers in Italy, which approaches that of managers in the English football premiership, it was unlikely to last long. It also comes with two contexts of which the first is that many will now doubt wish he was still running the European Central Bank. The second is the way that central bankers and politicians have become interchangeable with him ascending to running Italy as the former French Finance Minister Christine Lagarde took over the ECB. If we look further afield we see more of this in the way that the former head of the US Federal Reserve Janet Yellen is now US Treasury Secretary. Believe it or not some still talk of central bank “independence” which only exists in their minds.
There is a difference though in that in general as head of the ECB Mario Draghi gave orders and they happened. Even “Whatever it Takes”. But running Italy is a different kettle of fish as in some areas he would be in more control in his previous job.
This morning has brought a sign of a big issue at hand and there have been some large ch-ch-changes.
In February 2021 the number of employed persons were substantially stable, whereas a slight decline was
recorded for both inactive and unemployed people……..In the last month, the drop of unemployed people (-0.3%, -9 thousand) concerned men and under50; for
women and over50 a slight increase was registered. The unemployment rate declined to 10.2% (-0.1 p.p.)
and the youth rate to 31.6% (-1.2 p.p.).
The emphasis is mine and it is not because expectations missed by an extraordinary distance even by recent standards. It is because we were previously told this.
The unemployment rate rose to 9.0% (+0.2 p.p.) and the youth rate to 29.7% (+0.3 p.p.).
Those were for December and we see that a 0.1% decline has suddenly become a 1.2% rise! What has happened?
From 1 January 2021, the new Labour Force survey started, which transposes Regulation (EU)
2019/1700. As reported in detail in the methodological note, the time series of the aggregates disclosed in
this press release have been back-recalculated on a provisional basis, for the period January 2004 –
So we see that they have raised the reported unemployment rate by 1% or so and the youth unemployment rate by around 2%.
If we now move forwards on the basis of the new survey we can see this as the pattern.
In the period December 2020-February 2021, with respect to the previous quarter (September-November
2020), employment dropped (-1.2%, -277 thousand) for both genders……..In the last three months, an increase was registered in the number of unemployed persons (+1.0%, +25 thousand) as well as for inactive people aged 15-64 years (+1.3%, +183 thousand).
So we are left with the view that employment has been declining again. This is reinforced by the annual employment comparison.
Compared to February 2020, employment showed a sharp fall both in terms of figures (-4.1%, -945
thousand) and rate (-2.2 percentage points).
On a yearly basis, the drop of employed people was accompanied by a growth of unemployed persons
(+0.9%, +21 thousand) and a substantial rise of inactive people aged 15-64 (+5.4%, +717 thousand).
As you can see a signal of trouble has been the inactivity level. Regular readers will be aware that I have been reporting on the failure of unemployment measures to tell us anything much at all due to the way the furlough schemes have impacted on their definitions.
But there is more and it brings back our “Girlfriend In a Coma” theme because employment in Italy has been falling since the summer of 2019 and thus quite some time before the pandemic. It peaked around 23.4 million on the three-monthly average and had already declined by at least 200,000 pre pandemic.
If we switch to earnings then the latest official survey was released last week.
Mean annual earnings in 2018 is 35,062 euros and goes up to 36,610 euros in Industry (except Construction), while it reaches the minimum value of 31,967 in Construction sector……The Gender pay gap (GPG), calculated as the difference between the m gross hourly earnings of men
and women expressed as a percentage of those of men, is equal to 6.2%…..mean hourly earnings for temporary employees is 29.7% less than those of
permanent employees. The negative gap rises to 31.1% for part-timers compared to
The official surveys tell us this.
In March 2021, the consumer confidence index decreased, passing from 101.4 to 100.9……….As for the business confidence climate, the index (IESI, Istat Economic Sentiment Indicator) made progress from 93.3 to 93.9.
The surveys relate to 2010 being 100 which gives one context and another is that both are around ten points below where they were back in 2019. Also the official business survey for manufacturing is presumably picking up the same as the Markit IHS PMI one.
March data highlighted a further acceleration of Italy’s
manufacturing recovery. Both output and new orders
registered the steepest expansions for more than three years, with panellists reporting surging sales due to improved client demand. Subsequently, firms continued to take on additional staff to cope with workloads, while business confidence remained robust.
So good news for manufacturing although it means other areas must be struggling.
Much of the outlook depends on the vaccine programme according to Governor Visco of the Bank of Italy.
“The main instrument we bave at the
moment is neither monetary nor fiscal,
it is vaccinations,” he said.
This led to an awkward issue.
The G20 meeting this week comes as
the pace of the US’s vaccinati on push
has increased compared with the EU’s.
Economists have forecast that the US
will grow faster than European economies this year.
Visco said progress in the EU’s vacdnation programme meant that the bloc
would not be left behind by the US.
Plainly it has been left behind and added to this Italy decided on its own type of strategy.
Still lost in the EU vaccine supplies/exports drama is the fact that Italy has decided to give away a massive amount of its available shots to the least vulnerable parts of its population……..Government data released yesterday shows 88% of people aged between 70-79 are still waiting for their first vaccine jab, as are 43% of over 80s. Over 80% of Italy’s Covid-19 deaths have occurred in the over 70s. ( Miles Johnson of the Financial Times)
As you can see the Covid-19 pandemic is one issue for Mario Draghi but there are plenty of others from the long-running “Girlfriend In a Coma” theme. An example of the latter was the fall in the population by around 400,000 in 2020. There is also the issue of the Italian banks and the Financial Times has today noted one of the issues are play here.
The Banca d’Italia said the share of the nation’s authorities bonds owned by international traders fell from 25.9 to 23.6 per cent within the first six months of final yr, whereas Italian banks elevated their share from 16.9 to 18.6 per cent………….The debt of Italian banks to home authorities debt hit €712bn in August, up greater than 9 per cent from February and dipping barely since then.
Ironically the driving forces here have as an architect one Mario Draghi.
Banking laws deal with sovereign debt as a risk-free funding for banks, permitting them to allocate zero capital towards such property. By borrowing cash from the ECB as cheaply as minus 1 per cent, there’s a straightforward “carry commerce” for banks to make cash from shopping for authorities bonds.
They have done well to buy more with the ECB buting so many and here we can move onto something where Mario left a little present for himself. All that QE means that the debt issue has faded as presently it is so cheap.