Scenari Globali e Mali Italiani - Stern · PDF fileHSBC JP Morgan Chase ... current acoount balance (as % of GDP) as of 2013 16 . Month xx°2016|Prof. Giorgio Di Giorgio 17 Italy’s

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Prof. Giorgio Di Giorgio

Director, CASMEF

LUISS University, Rome

September 2016

Scenari Globali e Mali Italiani

Month xx°2016|Prof. Giorgio Di Giorgio

1 – The medium term macro environment, developed vs emerging countries

2 – Italy and our Structural problems 3 – Reforming Agenda and Needed Changes

Agenda

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Growth acceleration of emerging countries (with respect to developed ones) begins in the years 2000. In the same period inflation rates converge (in part).

Source: IMF

The medium term macro environment

3

Real GDP growth '80s '90s '00-'07 '08-'15 '16 estim '17 estim

World Economy 3,3 3,1 4,5 3,2 3,4 3,6Developed countries 3,1 2,7 2,7 0,9 2,1 2,1Emerging countries 3,5 3,7 6,5 5,2 4,3 4,7

Consumer inflation'80s '90s '00-'07 '08-'15 '16 estim '17 estim

World Economy 15,8 20,0 4,2 4,1 3,4 3,6Developed countries 6,5 2,9 2,1 1,6 1,1 1,7Emerging countries 36,1 54,3 6,8 6,3 5,6 5,9

-4

-2

0

2

4

6

8

10

80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20

Real GDP grow th (source IMF)

developed countries

emerging countries

0

20

40

60

80

100

120

80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20

Consumer inflation (source IMF)

developed countriesemerging countries


Emerging countries produce almost 60% of global GDP (in 2000 their share was 43%) and represent some 70% of global annual growth.

Who drives global growth

4

35

40

45

50

55

60

65

90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20

Distribution of World GDP(GDP measured at PPP, source IMF)

developed countries

emerging countries

%

42%

58%57%

43%


Long trends and a fast changing world

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A fast-growing world population World population levels show an exponential growth since the XIX century

15

According to the United Nations, world population has reached 7,3

billions in 2014 and will hit 10 billions by 2050

Source: ONU, Department of Social and Affairs

1700-2015 (*projection to 2100), bn estimate World population growth through history (bn)

Anni

Rate of growth over the centuries (projections)

60%

281%

84%


6

The demographic growth will shape a new global scenario A 4x population growth is expected in the poorest area of the world

16

Source: ONU, Wold Population Prospects, The 2015 Revision; McKinsey

Population by geographical area, 2015-2100 (bn-estimate)

0,6

0,7

4,4

+267%

+10%

% Change 2015-2100

In the next decades, Africa will experience a demographic explosion, India will overtake China as the most populated country in the

world, while Europe will be the only continent with declining population

Rest of the World

EUROPE

AMERICAS


The inequality challenge

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...but global inequality has never been so high… The difference between richest areas and the rest of the world is more and more emphasized

Source: Elaboration on Human Development report data, UNDP and UN Human Settlements Ptogramme, Maddison and Latouche *Income ratio between top 20% of the world’s people in the reachest countries and the poorest 20% of the world’s population

Geographical rapresentation of global inequality 2014

Ratio between richest geographical areas vs poorest area (gross income per capita)*

80x

1815 1970 2005

Colonial imperialism

Highest gross national income per capita area (PPA)

35x 3x

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8 19

...with global wealth concentrated in the hands of a few individuals

Source: Credit Suisse, Global Wealth Databook 2014

Only 0.7% of the world population owns 41% of global wealth, that reached $263 trillion in 2014, whilst 69% of the world population

accounts for a mere 3% of global wealth

* Value of financial assets and real estate owned by households, net of debts

Global wealth* distribution among world’s population by income group


Several implications…..some already evident...

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374289

207190188

178176168166162155153152147146

135131128128128126122

Exxon Mobil CorpPetroChina Co

Wal-Mart StoresICBC

Procter & GambleMicrosoft Corp

China MobileGeneral Electric

Johnson & JohnsonAT&T

Berkshire HathawayRoyal Dutch Shell

Volkswagen AgChevron Corp

Nestle SABP plc

Novartis AGHSBC

JP Morgan ChaseRoche Holding

CCBTotal

New players in the financial market (1/2) Top global companies by market cap

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In only seven years time, new players (especially tech companies) have risen to the top of the global market cap ranking

Top 20 market capitalization : $5.881 bn

Average: $294 bn

2016* ($ bn)

Top 20 market capitalization: $3.749 bn

2008 ($ bn)

Average: $170 bn +73%

Source: Elaboration on Bloomberg data (*) June 2016 data

195 196 206 211 211 219 223 234 238 245 255

277 318

337 341 349

376 410

497 542

Chevron CorpCoca-Cola

Novartis AGVerizon

PfizerProcter & Gamble

Roche HoldingNestle SA

JPMorgan ChaseAT&T

Wells FargoGeneral Electric

Johnson & JohnsonFacebook

AmazonBerkshire Hathaway

Exxon Mobil CorpMicrosoft Corp

Google (Alphabet)Apple Inc


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253220215

154148

139138

126125

9794

787775747371706964

WellsFargo (US)JPMorgan (US)

ICBC (Cina)CCB (Cina)

Agricultural BoC (Cina)BofA (US)

Bank of China (Cina)Citigroup (US)

HSBC (UK)Mercantil Serv (Ven)

CommBank (Australia)RBC (CAN)

Westpac Banking (AU)Banco Venezuela (VC)

TD Bank (CAN)Lloyds Banking (UK)

US Bancorp (US)Banco Provincial (Ven)

Mitsubishi Fin. (JAP)Santander (SP)

New players in the financial market (2/2) Top 20 global banks by market cap

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The global financial system is refocusing on China e USA, swiching from Europe and Japan

Top 20 market cap: $2.468 mld

278 196

177 165 165

160 141

112 110

105 104

98 90 88 88 85

78 78 76 75

ICBC (Cina)BofA (US)

HSBC (UK)CCB (Cina)BoC (Cina)

JPM (US)Citi (US)

WellsFargo (US)Santander (SP)

Mitsubishi (JAP)ABN (NL)

UCI (IT)Intesa-SP (IT)

BNP (FR)Goldman (UK)

UBS (CH)BBVA (SP)

Sberbank (Russia)RBS(UK)

Wachovia (US)

+4,34% Average: $123,4 mld Average: $118 mld

2007 ($ bn)

Source: Bloomberg (*) March 2016 data

Top 20 market cap: $233 mld

1991 ($ bn)

+964% Average: $11,6 mld

JAP51%

US 14%

EUR18%

Altri17%

Cina25%

US 31%

EUR37%

Altri7%

Goldman (US)

Top 20 market cap: $2.360 mld

2016* ($ bn)

Cina 28%

USA 34%

EUR11%

Altri 27%


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Long period GDP per capita dynamics

Italy Euro Area USA France Germany UK Spain Japan

1951-60 5,4 4,3 1,8 3,7 7,1 2,3 3,5 7,6

1961-70 4,9 3,7 3,0 4,4 3,5 2,2 6,3 8,9

1971-80 3,1 2,4 2,2 2,7 2,7 1,8 2,4 3,3

1981-90 2,4 1,8 2,4 2,0 2,0 2,7 2,6 4,1

1991-00 1,6 1,5 2,2 1,7 1,6 2,1 2,5 0,9

2001-10 -0,1 0,5 0,7 0,6 1,0 1,2 0,8 0,7

2011-15 -1,3 0,2 1,3 0,4 1,6 1,0 0,2 0,9


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Crisi e recupero, non per tutti

88

91

94

97

100

103

106

109

112

07 08 09 10 11 12 13 14 15 16

PIL in termini reali(ultimo trimestre 2007 = 100) USA = 111

SPA = 98

ITA = 92

GER = 107100

Fonte: elaborazioni interne Eurizon Capital SGR su dati Datastream


Low productivity

Low competitivity

Dangerous Debt/GDP ratio

Inefficient labor and goods markets

Excessive weight of SMEs, and of micro-firms among the latter

Excessive burocracy, service sectors highly regulated and protected

Costly and inefficiently provided local public services

Inadequate infrastructures (material and immaterial) Low profitability in a shaky banking system

High costs of politics and too many (and inefficiently coordinated) decision levels Lack of Assesment-Evaluation-Intervention procedures in public spending Too many laws, rare enforcement

Slow and inefficient Justice High taxes on families and firms

Low Social expenditure (excluding pensions) ……..Italy lost several positions in World Bank rankings for attractiveness as regards “Doing Business”

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Italy: Our Structural Problems


Italy’s re-convergence STEP 1: PRODUCTIVITY

Italy’s reform agenda it crucial in order to stop (and reverse) the fall in productivity. The reform already approved are "at work", but not yet visible in macro data.

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90

95

100

105

110

115

98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

Productivity (GPD per person employed)(Source ECB, Dec '97 = 100)

Italy

France

Germany

Spain


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Italy’s re-convergence STEP 2: EXTERNAL BALANCE

Italy remains a net exporter of manufacturing products (at the cost of an expensive energy bill).

-60

-40

-20

0

20

40

60

80

100

98 00 02 04 06 08 10 12 14 16 18

Italy: visible trade balance - EUR bn, last 12m

total trade balance (import - export)

trade balance net of energy components


Italy’s re-convergence STEP 2: EXTERNAL BALANCE

In terms of total foreign debt (govt+private) and current account balance Italy is in the "safe zone". The “euro peripherals” present weak foreign positions, but have all regained positive current accounts.

USA UK

Japan

Germany

France

ItalySpain

Netherlands

Belgium

AustriaPortugal

Ireland

Greece Finland

EMU

-5

-3

-1

1

3

5

7

9

11

-130 -110 -90 -70 -50 -30 -10 10 30 50 70foreign net position (as % of GDP)

current acoount balance (as % of GDP)

as of 2013

16


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Italy’s fiscal aggregates EUR bn as % of GDP ’14 ’15 ’16 ‘17 ’14 ’15 ’16 ‘17

Fiscal balance -49.0 -42.5 -37.0 -19.0 -3.0 -2.6 -2.2 -1.1 - Structural balance -0.7 -0.3 -0.7 -0.3

Interest spending 75.2 70.3 70.5 71.1 4.7 4.3 4.2 4.1

Primary balance 26.1 27.8 33.6 52.0 1.6 1.7 2.0 3.0

Macro assumptions ’14 ’15 ’16 ‘17

Nominal GDP growth 0.7 1.2 2.6 3.3 Real GDP growth -0.4 0.9 1.3 1.3

Italy’s re-convergence STEP 3: PUBLIC FINANCE

Italy’s fiscal account is close to balance in structural terms, while at -3% of GDP in nominal figures. Debt re-convergence is planned to re-start this year.

-14-12-10-8-6-4-202468101214

85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17

Italy: public f inance aggregates (as % of GDP)

budget balance

interest rate spending

primary balance

80

90

100

110

120

130

140

85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17

Italy: public f inance aggregates (as % of GDP)

gross debt


The Italian unemployment rate had remained below the peaks of the other peripherals, but now it is falling at a slower pace. Actually, employment has already started to recover since end 2013.

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Italy’s reconvergence step 4: the job market

3,54,55,56,57,58,59,510,511,512,513,5

90 92 94 96 98 00 02 04 06 08 10 12 14 16

Eurozone: rates of unemployment

EUR

FRA

GER

ITA

2

6

10

14

18

22

26

30

90 92 94 96 98 00 02 04 06 08 10 12 14 16

Eurozone: rates of unemployment

POR

SPA

IRLITA

GRE

0

200

400

600

800

1.000

1.200

06 07 08 09 10 11 12 13 14 15 16

Italy: redundancy payments - "cassa integrazione"(mln of hours over past 12 months)

1,3

1,8

2,3

2,8

3,3

22,0

22,2

22,4

22,6

22,8

23,0

23,2

23,4

07 08 09 10 11 12 13 14 15 16

Italy: employed and unemployed (in milions)

employed +455k from the minimum

unemployed -349kfrom the maximum


Italy’s job market is as weak as that of Spain in the Euro G4 due to very low employment rate of women.

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Follows….Italy: the job market

74 7869

64 6861

5665

4756 61

51

TOTAL MALE FEMALE

Employment rates (source Eurostat, 2014 figures)

GER FRA ITA SPA


Another structural Italian weakness, very well depicted in job market statistics, is the poor performance of regions in the South of the country. Unemployment is also higher among the young.

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6573

586270

5543

55

31

TOTAL MALE FEMALE

Italy: employment rates (source Istat, Q4 '15 f igures)

North Center South

20 231616 18 1411 14

7

TOTAL MALE FEMALE

Italy: employment rates, youngs 15 and 24 years(source Istat, Q4 '14 f igures)

North Center South

Follows Italy: the job market


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Italy’sreconvergencestep5–thebankingsystem

USAandAreaeuro:NPL/loans


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Follows…...EuroArea:incidenzaNPLitaliane


Efficiency and competitiveness depend upon product and process innovation In Italy, private sector (more than public) investment in R&D and (as a consequence) patents are much lower than in other industrialized countries. The productive system resisted to change and sectoral shifts becoming dangerously exposed to emerging countries competitive pressures. The reduced dimension of Italian firms (which surely affects R&D and limits our weight in high – tech sectors) maybe a rational response to the institutional incentive system (and not a signal of myopic capitalism). As a matter of fact, small enterprises have been sistematically subsidized and protected by distorting and more favourable legislation and practices in terms of accounting and fiscal rules and practices, labor market, credit facilities. Moreover, they have been also frequently exempted from ordinary controls and monitoring activities. If this is true…….there is room and need for policy intervention

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Italy: Bad System Incentives, CHANGE is the challenge


Italy’s reform agenda started in the late ’90s, but stalled in the ’00s. The financial crisis of 2011 revived it. The main measures taken by the Monti government (Nov ‘11 – Apr ’13) are:

- Pension reform: a good result overall, quick and convincing , the final word to stabilize the pension system after a long series of measures that had started in the early ’90s. Notice that stabilization is at a much higher average % of GDP w/r to other countries.

- Reorganization of local entities: abolition of some local government (small Provinces merged through 2013), the measure started a process that still has to be completed.

- Anti-corruption law: penalties in cases of corruption have been made more severe, people convicted for corruption are banned from public office. Corruption is considered one of the major reason why Italy is unable to attract foreing investments.

The process slowed down under the Letta government (Apr ‘13 – Feb ‘14). Main measures:

- Unlock arrears payment of PA : in agreement with the EU Commission the government started to unlock arrears payment of Public Admistration, mainly local entities, to enterprises (a totale of 90 bn EUR). Since 2013 the Central Government had supplied local entities with some 43 bn EUR, in order to help them paying their arrears. The measure has been very much important to help enterprises during the phase of economic recession and credit crunch.

- Fiscal policy: the Letta government succeeded to loosen somewhat the austerity stance, taking profit of the end of the EU procedure for excessive deficit. The single headline measure that arose more controversy was the abolition of the property tax on the main house of residence (worth 4 bn EUR). Most commentators think that instead it would have been better to cut the cost of labour. Also, a 1% hike in VAT tax already scheduled was postponed (a measure worth 2bn EUR).

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Italy: the agenda of reform


The Renzi government (since Feb ‘14) undertook an ambitious reform agenda.

- “Fiscal policy”: for 2015, 18 bn EUR tax cuts (both for households and for companies) to be financed by spending cuts; further measures are in the pipeline with the main focus on the treatment of fiscal crime.

- The actual implementation of spendig cuts has to be verified. Nonetheless the choice to cut taxes goes in the right direction.

- Jobs act: a comprehensive reform of the job market already approved. Introduction of a new job contract with greater entry / exit flexibility. 3 years fiscal incentives for companies that hire new workers under the new rules.

- Electoral and institutional reforms: this is probably the most delicate part of the Renzi program. Renzi’s proposal to reform the Senate (taking it out of the ordinary legislative process) and to adopt a more majoritary electoral law is presently under scrutiny of a referendum. Should these reform be approved, the Italian institutional system would be simpler (and potentially more stable than it has traditionally been?).

- Reform of the Public Administration: The reform includes new job rules that recall the higher entry / exit flexibility introduced by the jobs act for the private sector. The reform is key for the success of the spending review, but needs to be evaluated in its real efficacy.

- Reform of Justice: Italy scores at the top in the world list for the length of civil and criminal trials. This "record" is considered one of the major reasons for the low level of foreign direct investment in Italy in recent years. A comprehensive reform is in the Renzi agenda.

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Italy: the agenda of reform


Conclusions

In Italy, need to continue and strengthen the reforming process CHANGE is necessary in the country Austerity measures were needed to gain back market’s confidence Control of public expenditure is necessary to lower high fiscal pressure Recomposition of public expenditure is needed and helped by low interest rates on debt that will not be there forever (more investment in infrastructures and human capital, less business subsidies, reduced expenditure for purchases and health) More private capital (equity finance) and a fiscal reform are necessary to boost innovation and dinamism

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These measures have to be complemented with growth enhancing measures based on: - Correcting distorting incentives

- Opening market spaces (dismissions – privatizations, focus on local public services) within clear rules and public monitoring

- Improving public administration outcomes at constant cost (inter-institutional labor mobility in a range of 50km)

- More rapid judicial outcomes to guarantee contracts enforcement

- MESSAGE: USE ECONOMIC POLICY TO PROVIDE RIGHT INCENTIVES TO INDIVIDUAL ACTIONS …..Hope for a new age of Dinamism and Prosperity

Documents

Scenari Globali e Mali Italiani - Stern · PDF fileHSBC JP Morgan Chase ... current acoount balance (as % of GDP) as of 2013 16 . Month xx°2016|Prof. Giorgio Di Giorgio 17 Italy’s