Peaks and Troughs in the 2019 Economic Setting

While growth seems to be slowing down both nationwide and internationally, with economic trends which vary from one country to another, the government relaunches some measures which should favour innovation especially for SMEs

According to Istat’s latest data, in 2018 the growth of the gross national product will stop at 1.1% in real terms, with a slight acceleration in 2019 (+1.3%).
The current forecast scenario is characterized by some risks of downturns, represented by a milder evolution of international trade, by an increase in uncertainty levels on the part of operators and by monetary policy decisions by the European Central Bank. “Economic growth in Italy is decreasing”, Confindustria’s Studies Centre (CSC) also states, adding that in 2019 the increase in GDP will only reach 0.9%, less than the 1.1% increase recorded in 2018. According to Confindustria, the programmed aim of a 1.5% increase would be overestimated if some risks were to become real, such as, if an increased mistrust of foreign investors and the negative judgments of rating agencies should cause the onset of a downward spiral on credits, consumption and investments.

Growth is envisaged for exports
The only strength in the Italian scenario according to the CSC seems to be exports which should increase again this year, albeit slowly, assuming the international trade tensions will diminish and the euro’s exchange rate will not turn into a fetter for sales as happened before in 2018. Even analysts at Goldman Sachs do not have a positive impression of Italian economics, and they are talking about a possible recession in the first half of 2019. Of course the analysis starts from the current situation, that is, from the weak macroeconomic data which Istat circulated. The drop in the GDP in the third term, the increase in unemployment and the decrease to below 50 of the SME manufacturing index are signs which should not be neglected.

The international scenario between protectionism and deceleration
Even forecasts for the international economy this year show a deceleration of real GDP to +3.5%, from last year’s +3.7%. This trend has been affected by the negative effects on world trade of the application of protectionist measures and, especially emerging countries, of more restrictive financial conditions, of geopolitical tensions and of a higher price of oil. Risks associated to the ongoing process of finalizing Brexit should on the other hand diminish on account of the agreement reached by the British government, which would point to the hypothesis of a customs union with the EU. During the summer months of last year, the contingent increase in the GDP of the euro area settled at 0.2%, down from the second term’s 0.4%. This deceleration, which determined a downsizing of the variation trend (+1.7% from +2.2%), is mainly driven by factors on the demand side, and by a smaller impulse provided by exchanges outside of the area which were affected by the joint influence of the weakening in global trade and of a moderate increase in the euro’s actual nominal exchange rate.

The different dynamics in the various countries
Indifferent countries, the sign and intensity of economic dynamics have been heterogeneous. In the third term, the GDP in France showed a contingent growth of 0.4%, showing signs of acceleration (up from +0.2% in the second term), in Spain it settled at 0.6% while in Germany it decreased (-0.2%) even on account of the enforcement of the law on exhaust fumes which caused a drop in the sales and production of cars. Should the signs of acceleration of economic activity carry on further, during the next few months there could be reflections on the ECB’s decisions concerning normalization of its monetary policy.
In any case the fundamentals for consumption and investments in the area altogether confirm their solidity and suggest that the deceleration might be temporary.
The Economic Sentiment Indicator reported by the European Commission last October decreased for the tenth month running, confirming indications of trust analyses from the single countries.
As regards real GDP, a 2.1 growth is envisaged for 2018, slowing down to 1.9% this year, due mainly to external factors such as the deceleration of global trade. On the exchange market, the cyclical staggering in favour of the United States and the increase in interest rates by the Federal Reserve might determine an increase in the value of the dollar with respect to the euro in 2019.

Incentives for SMEs continue
In Italy, meanwhile, some provisions concerning hyper amortization for Industry 4.0-related investments have been confirmed.
As the 2019 budget law states, “ in order to encourage technological and digital transformation processes following the Industry 4.0 model, provisions in article 1, part 9 of law number 232 dated December 11th, 2016, also apply to investments in new physical instrumental products, meant for production structures within the State’s territory, carried out before December 31st, 2019, or before December 31st, 2020 provided by December 31st, 2019 the relative order has been accepted by the vendor and downpayments equal to at least 20% of the purchasing costs have been made”.
The most interesting news is that the increase in the cost of investment purchases applies to the extent of 170% for investments of up to 2.5 million euro;
100% for investments over 2.5 and up to 10 million euro, and 50% for investments over 10 and up to
20 million euro.
The increase in cost does not apply to the part of overall investments which exceeds 20 million euro. Attention to the growth of SMEs is therefore confirmed.
Hyper amortization for instrumental products increases fro, 250% to 270%, and investments in larger production plants are penalized.