This analysis measures the negative shock to Italy's terms of trade (i.e. the ratio between the export and import deflators) as of the second half of 2021, when energy prices began to rise. The shock is appraised both from a historical perspective and in comparison with the main euro-area countries. The implications for the balance of payments current account and for GDP are also illustrated.
Italy's terms-of-trade deterioration in 2021-22 was less pronounced than in the 1973-74 oil crisis, though it was still sharp. It was driven by the energy goods component and was greater than in the other euro-area countries. The shock led to a strong deterioration in the current account balance and to a very large negative income effect (also in comparison with other economies), though these effects were temporary.
