Italy hits the stagflation trail too

by Shaun Richards

It is past time for us to take another look at the economy of Italy and one reason for doing that is for once we can start with some good news.

In August 2021 estimates for seasonally adjusted index of retail trade rose in the month on month series by 0.4% both in value and in volume terms.

In the three months to August 2021 value of sales was up 0.8% when compared with the previous three-month period, likewise volume increased by 0.5%. ( Istat )

Not exactly a surge but the late summer has been a rough period for retail sales in more than a few places elsewhere, so even a little growth is welcome. One point of detail though is that we are told there was no monthly inflation which is both intriguing in these times and another tick in the box for my long-running theme that lower inflation boosts this area.

The annual picture is also positive.

In August 2021 both value and volume of retail trade continued to grow for the 6th month in a row in the year on year series. Value sales increased by 1.9% and volume sales rose by 1.0% comparing to August 2020.

In terms of detail we see the breakdown here.

Looking at the value of sales for non-food products, all sectors experienced growth besides tools (-2.2%), furniture, textile items and household furnishing (-0.2%) and clothing (0.0%). The largest increases were reported for electric household appliances, audio-video equipment (+20.5%) and other goods (+8.2%).

Along the way we have seen some Turning Japanese signs with the apparent low inflation. Let me now give you another as the volume index set at 100 in 2015 has crawled its way to 101. So the Italian version of the “lost decade” theme has been “Girlfriend in a Coma”. Oh and take care with the official chart which looks better because it is value not volume.


We can continue our better news theme with this week’s GDP revision.

In the second quarter of 2021 the seasonally and calendar adjusted, chained volume measure of Gross
Domestic Product (GDP) increased by 2.7% to the previous quarter and by 17.2% in comparison with the
second quarter of 2020.

So a good quarter of growth which was similar to Spain before someone chopped Spain off at the knees. It is not often that Italy is a leader of the pack in the growth club. It was also pretty balanced across the economy.

Compared to previous quarter, final consumption expenditure increased by 3.4%, gross fixed capital
formation by 2.6%, imports and exports by 2.4 and 3.2% respectively.

There is another Japanese link because not only was export growth faster than imports Italy had a solid trade surplus. Exports exceeded imports by around 8.6 billion Euros.

Sadly the next part is sub-Japanese. We start with quarterly GDP in 2015 prices being 414.2 billion Euros which is quite a bit short of late 2019 which pushed above 430 billion. Even worse Italy was also above 430 billion on this measure in late 2010 and early 2011. So the period including a part claimed as the “Euro Boom” is in fact quite an economic depression.

The Labour Market

The credit crunch taught us that this could be a more timely economic measure than the output figures above. As you can see below the initial reading is not exactly auspicious.

In August 2021 the number of both employed and unemployed persons decreased, while a growth was
recorded for inactive people.

The theme of a fast growing economy hit particular trouble here.

On a monthly basis, the decline of employment (-0.3%, -80 thousand) involved more women than men,
and was widespread in all age classes. Overall, the employment rate dropped to 58.1% (-0.2 p.p)

Whilst the actual numbers for employment have been affected by the furlough schemes the direction of travel is still a signal. Thus around a third of the previous annual gains have faded. In terms of the overall picture employment for above 23.4 million and now is a bit above 22.8 million.

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We lose the Japanese tinge here.

According to preliminary estimates, in September 2021 the rate of change of the Italian harmonized index of consumer prices (HICP) was +1.4% on monthly basis and +3.0% on annual basis (from +2.5% in August).

Italian consumers and workers will not like this and there is a further nuance from the recent energy price crisis.

Italian Prime Minister Mario Draghi on Thursday (23 September) announced measures worth three billion euros to keep gas and electricity bills down this winter as power prices soar across Europe.

He told the Confindustria employers association the measures would particularly target the poorest and most vulnerable.

“In the absence of government intervention, in the next quarter the price of electricity could increase by around 40%, and that of gas by 30%,” Draghi said.

“For this reason we have decided to eliminate for the last quarter of the year the system costs for gas for everyone, and for electricity for families and small companies.” ( Euroactive)

There is a lot going on here of which the first point is that this is before the latest increases. But already the Italian government was intervening to stop some of it and it is hard not to have a wry smile at why?

System costs are added to energy bills to cover measures such as incentives for renewable energy sources.

Yes the very thing that the establishment have been pushing for ages! Is there anyone more EU establishment than Mario Draghi?

Also the statement below is exactly the reverse of what was only recently done with the Nordstream 2 decision which also threw some of Eastern Europe to the wolves.

The former European Central Bank chief said that many of the reasons for the energy price increases were temporary but called for long-term action, including at a European level, to address the problem, including through diversifying supplies.

I do not know about you but this from yesterday looks the opposite of diversification to me.

ROME (Reuters) – The European Commission will soon present a plan to become the single buyer for energy for all the European Union member states, Italian Prime Minister Mario Draghi said on Wednesday.

“The Commission will present a proposal to be discussed at the next European Council,” Draghi told reporters after a EU meeting in Slovenia.


Whilst the story starts well with the latest economic growth figures that fades when we bring in some perspective. Then it is hit by the employment moves followed by the energy price crisis I looked at yesterday.  So growth looks set to dribble away which is a constant theme in my updates on Italy, at least when it is not declining. This leads me to another constant theme.

The lower deficit will in turn drive Italy’s debt-to-GDP ratio below the 159.8% targeted in April. ( Reuters)

Officially it is always getting lower and has done so ever since it was around 115%. These days there is much less urgency around the numbers because the benchmark ten-year yield is a mere 0.8% or so. But it is another signal of the disappointing growth performance.

A factor in the recent moves is something I flagged when the Covid crisis began and that is what will happen to tourism? If Italy is to mount a proper recovery that needs to return.  But will it fully do so and when? For now the government rhetoric of recovery looks set to collide with reality.

Meanwhile another theme is in play as this looks never ending.

ECB Said to Study New Bond-Buying Plan for When Crisis Tool Ends ( Bloomberg)


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