Investment helps drive Italian rebound

Matteo Dell’Acqua never thought Italy’s rebound from Covid would be this good.

The 31-year-old boss of a family business says his investment in digitalisation and more environmentally friendly products made during the pandemic is paying off and has contributed to a 20 per cent annual increase in orders.

“It’s going very well,” said Dell’Acqua, whose company in Lombardy, Italy’s initial Covid epicentre, makes plastic pipes and tubing. The company was “sailing through” the post-pandemic phase, he said, thanks to “a positive atmosphere generated by the sudden and unexpected recovery”.

Italy, the first European country affected by the pandemic, is now changing gear in its recovery after a widespread vaccination programme, robust investment and expanding exports.

“Italy’s economic outlook is far better than we expected in the spring,” said Mario Draghi, prime minister, last month. He expects growth of 6 per cent this year, in line with the OECD and international private forecasters — 4.5 per cent was expected in April.

Italy’s economic growth had the biggest upgrade of any other G7 country over the past five months, according to Consensus Economics, which averages leading economists’ forecasts.

It is a marked change for a country that has suffered years of economic stagnation, dragging living standards below the EU average. Economists hope it could be a springboard for longer-lasting changes, with an ambitious programme of EU-funded reforms and public spending getting under way.

“For the first time in many decades, Italy is in such a favourable position,” Laurence Boone, chief economist at the OECD, told the Financial Times. She pointed to Italy starting to tackle well-known brakes on growth such as a sclerotic civil justice system and public administration and its ineffective competition laws. “Italy today is in the position of resetting its economy.”

Draghi has put much of the improved outlook this year down to his government’s vaccination campaign. Italy’s proportion of fully vaccinated people is the second-largest of G7 countries after it made a Covid “green pass” mandatory for most workers and access to most public venues. Household consumption rose 5.5 per cent in the second quarter.

Nicola Nobile at Oxford Economics expects the economy to have expanded about 2.5 per cent in the third quarter after an above-expectation 2.7 per cent rebound in the previous quarter.

Other factors were also at play, said Emma Marcegaglia, chair of the B20 international business summit, a G20 business forum. Investment was “booming”, she said, thanks to government-backed incentives for energy efficiency improvements and purchases of machinery and equipment, as well as more investor confidence in Draghi’s government after years of instability.

Many businesses have stepped up digital investments to adapt to the pandemic, helping Italy, which lagged behind EU peers on readiness for ecommerce, to make up ground. Investment was 5 per cent above pre-pandemic levels in the second quarter, stronger than a marginal contraction in Germany and a 4.5 per cent drop in the UK.

Exports are also supporting the post-pandemic rebound. In the first seven months of the year, the value of Italy’s goods exports was up 4 per cent compared with the same period in 2019, better than stagnation for Germany and a contraction for France.

The green and digital transition could continue at a much faster pace if Italy gets €205bn from the EU’s “Next Generation” recovery plan promised should key reforms and targets be achieved.

But Nobile said “ambitious reform agendas typically face enormous political hurdles in Italy” and official growth forecasts could be “too optimistic”.

Meanwhile, there are shorter-term concerns. Italy is already worried by Europe’s soaring energy prices and is to spend €4bn to subsidise bills. A protracted crisis could dent the recovery.

However, business and consumer optimism remain at a near-decade high. “Of course, we have to be cautious and continue to monitor critical factors such as the cost of raw materials and transport,” Dell’Acqua said, “but at the moment we have the wind in our sails.”