Italy’s economic prospects sour as inflation bites - Dailyforextrading

Italy’s economic prospects sour as inflation bites - Dailyforextrading

Behind the counter of F.lli Gondola, a coffee bar and pastry shop in Frattamaggiore, owner Salvatore Gondola keeps a picture of Italian footballer Lorenzo Insigne.

Insigne, who grew up in this small town to the north of Naples, and his fellow Azzurri players won the nation’s hearts when they clinched the European football championship against England last year — a fitting symbol for a country bouncing back after a devastating pandemic hit.

Italy began 2022 poised for a year of buoyant growth and structural reforms, underpinned by Prime Minister Mario Draghi’s assured leadership and the infusion of EU funds.

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A once-in-a-generation effort to tackle its chronic weakness and raise its long-term growth trajectory, funded by a €191bn chunk of the EU’s €750bn Covid recovery plan, was underway.

On and off the pitch, the glory has faded fast. The Azzurri missed out on qualification for the World Cup after an embarrassing defeat to North Macedonia and the economic outlook has turned so bleak that there is the possibility of a recession this year.

Any momentum built up in 2021 has been dented by soaring food and energy prices, which are squeezing household incomes and battering fragile small businesses. “Today it’s hard, really hard,” said Gondola. “It’s like during Covid. The only difference is that this time, it’s without a mask.”

Italy is hardly the only European economy facing hard times. Brussels recently pared back its forecast for GDP growth in the EU this year to 2.7 per cent, down from a 4 per cent estimate in February. Inflation is higher in economies to the east, in Germany, and in the Netherlands.

But Italy relies heavily on Russia for its energy, leaving it vulnerable to the conflict in Ukraine. “Some countries are more exposed than others,” said Lorenzo Codogno, former director-general of the Italian treasury.

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“Within the major countries, Italy is as exposed as Germany, and probably even more, to high energy costs . . . It is a massive term of trade shock to consumers, which means the whole country becomes poorer.” A deal signed with Algeria to provide gas from North Africa will take years to pay off. Source: Financial Times...




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