One year of Meloni government between Pnrr, inflation and extra profits

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By John

During the first year of the government led by Giorgia Meloni, Italy’s GDP underwent downward adjustments, in the wake of the slowdown in growth that affected all of Europe, but performed better than the main continental economies. The rebound linked to public spending carried out to implement the policies to accompany the escape from the Covid pandemic has stopped.

THE IMPORTANCE OF THE PNRR

The German locomotive, Italy’s main trading partner, is struggling with stagnation. The entire continental economy is feeling the effects. A new boost could come from the investment of community resources from the Pnrr, Italy is entitled to 191 billion euros, but implementation delays risk undermining its success. Italy is among the countries that have most insisted on a revision of some targets of the plan, considering that it was conceived by the EU before the conflict broke out in Ukraine and therefore did not take into account the wave of rising prices of raw materials . At the end of July the government requested the review of projects worth 19.5 billion euros, claiming that “significant critical issues have emerged which do not allow confirmation of the financing under the plan”. The attempt is to refinance some of them through the complementary fund to the Pnrr and state resources. The EU has recently released the payment of the third and fourth instalments. The markets, despite some fears on the eve of the event, welcomed the first government of republican Italy with a markedly right-wing traction without prejudice.

It is on the inflation front that the government finds itself facing the most alarming data. In October 2022, when the executive takes office, the consumer price index marks +11.8%, the highest since 1984, at the time Bettino Craxi’s first government was in office. A slow decline has started since last autumn, even if the data relating to the prices of the shopping trolley still remains high. In August 2023 Istat estimated a consumer price index at +5.4% in August, with a change of +0.3% on the previous month. The trend of the spread in recent months has been downward although showing some fluctuations. On 26 September 2022, the day after the elections which awarded victory to the centre-right coalition, the BTP/Bund differential closed sharply higher at 242 points, the highest since May 2020, compared to 229 at the opening with the rate at 4.516%. According to analysts, however, the centre-right’s victory in Italy at that time had a relative impact on the rise in spreads and yields: the interest rate effect was much more evident with the ECB’s tightening at that time still yet to be digested by operators. The spread is currently under 185 points. (AGI)
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