This paper analyses the response of the Italian economy to the slowdown of the German economy that began in 2018. Using microdata from the Bank of Italy's survey on inflation and growth expectations, the impact of this shock on firms' judgments regarding their investment, employment and demand is assessed using a difference-in-difference approach. In addition, using a simple forecasting model, a quantification is proposed in terms of lower output and investment.
The analyses show that between the end of 2018 and 2019, the ratings of firms exposed to the German market were worse than those of others. The effects appear to have been significant on demand and investment, but almost zero on employment. In addition to a synchronization of the economic cycles of the two countries, there is thus a transmission of macroeconomic trends from the German economy to the Italian one, the channel of which is plausibly connected to the relevant trade links.
Forthcoming in: International Journal of Central Banking.
