In 2023, the global economy is expected to slow, but less than forecast last autumn
In the early months of the year, the global economy and international trade con-tinued to be weak, owing to the longstanding geopolitical uncertainty and persistently high inflation in the main advanced economies. The international institutions confirmed the prospect of global GDP slowing this year, albeit less so than was estimated in the autumn of 2022. The price of oil went down in March and then rose in the early days of April following the announcement by OPEC countries that production was being cut. Natural gas prices have fallen further in Europe, thanks to sizeable stockpiles and the mild temperatures.
Monetary tightening continues in the main advanced economies and tensions have emerged on the international markets
The Federal Reserve and the Bank of England decided on new increases in their policy rates in their February and March meetings. Global financial market conditions had deteriorated since mid-January, affected by expectations of greater and more prolonged increases in policy rates; since 9 March, the failure of some banks in the United States and Switzerland has led to a sharp increase in risk aversion and greater volatility.
Economic activity grows weakly in the euro area and inflation falls, but core inflation rises
Economic activity in the euro area started to grow again, if slightly, at the start of the year. Loans to firms contracted. Consumer price inflation fell further due to the sharp decline in the energy component, but the food component and core inflation increased again, remaining at high levels. The inflation expectations of households and firms are lower; the medium- and long-term ones inferred from the financial markets remain in line with the price stability objective. Wage growth is strengthening, boosted by the marked growth in employment.
The ECB raises its official interest rates again
The ECB Governing Council increased its key interest rates by 50 basis points at both its February and its March meetings, bringing the reference rate to 3.0 per cent. The Council also indicated that the high level of uncertainty is making it all the more important to adopt future decisions meeting by meeting and to take a data-dependent approach. The Council began reducing its asset purchase programme (APP) portfolio in March.
GDP in Italy appears to have increased slightly in the first quarter of 2023
According to our models, economic activity increased slightly in Italy in the first quarter of this year, driven by the manufacturing sector, which benefited from energy prices falling and supply chain bottlenecks easing. Household spending appears to have remained weak, as inflation was still high. Capital accumulation instead seems to have continued. The firms interviewed in February and March for the Bank of Italy's business surveys indicated that investment conditions have become less negative.
Exports increase and the current account balance turns positive
Growth in Italy's exports, which strengthened in the fourth quarter of last year, remained positive at the beginning of 2023. The current account returned to positive territory at the end of 2022, reflecting the marked fall in energy prices.
Employment continues to rise and wage growth remains moderate
Employment rose in the fourth quarter of 2022, and labour demand grew again in the early months of this year, despite the weak economic situation. Wage growth shows no signs of a strong acceleration overall; firms' profit margins increased slightly.
The fall in inflation is driven by the energy component, while core inflation remains high
Inflation went down on average in the first quarter (to 8.2 per cent in March) but core inflation rose, continuing to be affected by the pass-through to final prices of the higher costs linked to the energy shocks.
Bank lending falls markedly; financial conditions are affected by tensions in the international markets
The rise in policy rates continues to pass through to the cost of credit. Bank loans contracted between November and February, particularly those to firms, owing to weaker demand and tighter credit standards. Financial market conditions have deteriorated in Italy too since mid-January, reflecting the same factors that have shaped international trends. In March, the difficulties of some banks in the United States and Switzerland led to downward pressures on equity prices, particularly in the financial sector. Euro-area banks, including Italian ones, are in a far better position than was observed during crises in the past, thanks to high capitalization, abundant liquidity, and profitability recovering strongly.
The public finances improve in 2022
The ratio of general government net borrowing to GDP decreased by 1 percentage point last year, to 8.0 per cent. The debt-to-GDP ratio fell significantly, in part due to the favourable trend in the gap between the average cost of the debt and nominal GDP growth. The statistical reclassification of some tax credits in the construction sector changes the year when the cost of these tax benefits is recorded, but it does not alter their overall size or their impact on the debt.
