"THE OUTLOOK FOR THE ECONOMY AND FINANCE" - 31ST THE EUROPEAN HOUSE - AMBROSETTI FORUM - Sipotra
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31ST THE EUROPEAN HOUSE – AMBROSETTI
"THE OUTLOOK FOR THE ECONOMY AND FINANCE”
FORUM
November 20, 2020
Introductory Remarks
Valerio De Molli (Managing Partner and CEO, The European House – Ambrosetti)Inserire titolo
The impact delCOVID-19
of the documento
emergency on the Italian economic scenario
United States, India and Brazil are the countries worst-hit
On a global level Cases Cases Deaths Deaths
(total) (last 24 hours) (last 7 days) (total)
Cases 55,743,951 USA 11,359,802 154,316 9,004 248,687
Deaths 1,339,436 India 8,912,907 38,617 3,422 130,993
Brazil 5,911,758 35,294 3,870 166,699
France 2,036,755 45,522 4,066 46,273
Russia 1,991,998 20,985 3,226 34,387
First 10
Countries Spain 1,510,023 13,159 1,583 41,688
UK 1,410,732 20,051 2,975 52,745
Argentina 1,329,005 10,634 1,923 36,106
Italy 1,238,072 32,191 4,134 46,464
Colombia 1,211,128 5,911 1,233 34,381
13th Germany 833,307 17,561 1,352 13,119
2
Source: The European House – Ambrosetti elaboration of WHO data, 11/18/2020Inserire titolo
The impact delCOVID-19
of the documento
emergency on the Italian economic scenario
The global health crisis has rapidly become a socio-
economic crisis of historic proportions which has
affected every country in the world
3Inserire titolo
The impact delCOVID-19
of the documento
emergency on the Italian economic scenario
The International Money Fund’s new Global Outlook forecasts the worst drop in
global GDP since the post-WWII period: -4.4%
Forecast downturn in GDP 2020 issued by the International Monetary Fund (%)
economies
economies
Emergingemergenti
Advancedavanzate
Eurozone
Germany
Economie
Economie
Germania
Giappone
Eurozona
France
Canada
Spagna
Francia
Japan
World
ASEAN
Mondo
China
Spain
Russia
Italy
India
Italia
Cina
USA
UK
2
1,9
0
-2
-3,3 -3,4
-4
-4,4 -4,1 -4,3
-5,3
-6
-5,8 -6
-7,1
-8
-10 -8,3
-10,3 -9,8 -9,8
-12
-10,6
-12,8
4
-14
Source: The European House – Ambrosetti elaboration of IMF data, updated in October 2020Inserire titolo
The impact delCOVID-19
of the documento
emergency on the Italian economic scenario
In Italy, consumption in the first two quarters of 2020 plummeted like never
before … ▪ In 2020 a drop in
Variation in private consumption in Italy consumption of up to
(var. % Y/Y until 2019 and first two quarters of 2020), 2000 – 2020-Q2 €56 billion compared
to 2019 is expected
▪ 30% of families claim
4,0% that they do not have
2,0% the financial means to
0,0% cope with a new
-2,0% lockdown
-4,0% ▪ almost one Italian in five
-6,0% would not be able to
-8,0% -6,8% cope with an unforeseen
-10,0% outlay of €1,000 with
-12,0% their own resources.
-11,4%
-14,0% ▪ 58% of families would
have difficulty in coping
T2-2020
T1-2020
2010
2001
2002
2003
2004
2005
2006
2007
2008
2009
2011
2012
2013
2014
2015
2016
2017
2018
2019
with an unexpected
outlay of €10,000 with
their own resources
Source: The European House – Ambrosetti elaboration of Istat and Ipsos data, 2020 5Inserire titolo
The impact delCOVID-19
of the documento
emergency on the Italian economic scenario
… severely undermining the incomes of the Italian middle class
Average value of net income at the disposal of Italian families, distributed by
percentile and sections representing the middle class (Euro), 2017 € 56.100
Middle class
€ 43.720
€ 36.024
Average value: € 30,490 € 29.366
€ 24.873
€ 21.400
€ 18.010
€ 14.932
€ 10.669
Percentile p10 p20 p30 p40 p50 p60 p70 p80 p90
The pandemic could force over 1.6 million families out of the middle class (9.9% of the total of
middle class families) and generate a loss of net income available to the middle class of over €23.4 billion
Source: The European House – Ambrosetti elaboration of Bank of Italy data, 2020 6Inserire titolo
The impact delCOVID-19
of the documento
emergency on the Italian economic scenario
In the absence of significant welfare policies, the pandemic could triple the
number of Italian families in absolute poverty
Families in absolute poverty in Italy (in millions), 2019-2020e
x3
5.1 million
families
1.7 million
families
e
2019 2020
Due to the pandemic, if significant welfare policies are not implemented, the penultimate percentile of the
families could drop below the poverty line, which would bring Italians in absolute poverty to over
10 million with dangerous implications for the weaker segments, such as minors in absolute
poverty, who would increase by 80%
Source: The European House – Ambrosetti elaboration of Household Finance and Consumption Survey and Eurostat data, 2020 7Inserire titolo
The impact delCOVID-19
of the documento
emergency on the Italian economic scenario
The European House – Ambrosetti developed a 2020 GDP forecast model
which takes into consideration multiple factors that could change
▪ The model starts from Istat data which indicate a variation in the current economic context of -5.4% for the
first quarter,
-17.3% for the second quarter and +16.1% for the third quarter.
▪ Although a downturn in economic activity is forecast for 2020q4, it is not expected to be as serious as that of
2020q2
▪ The model assumes that 30% of SMEs are exposed to a liquidity risk that could jeopardize their business
▪ Business confidence
□ The model considers a reduction in investments for more than one year: investments are expected to
recover in 2021
□ It is estimated that 17% of companies face a liquidity risk and default
□ We also estimate that the services sector is less affected than the manufacturing sector
▪ Credit crunch
□ The model does not consider a freeze on business funding (also thanks to the monetary policies adopted by
the ECB) and does not therefore consider a credit crunch
8Inserire titolo
The impact delCOVID-19
of the documento
emergency on the Italian economic scenario
as of this moment, for 2020 we expect a downturn in Italian GDP of -10.8%,
unless radical economic policy measures are taken
1.787,6
Agrifood
Agroalimentare Manufacture
Manifattura Constructions
Costruzioni Services
Servizi
-1,9%
Estimated -6,8%
range: +0%
Estimated range: Total impact
-3.8%
-4.0% -9.6% -10.8%,
estimated 1.595,3
-21,4% range:
Estimated range: -7.8% - 13.8%
-17.9% -24.9%
-40,0%
Estimated range:
2019 GDP -35% -45% 2020 GDP
(est.)
Source: The European House – Ambrosetti data elaboration, 2020 9Inserire titolo
The impact delCOVID-19
of the documento
emergency on the Italian economic scenario
The year 2021 presents great uncertainty connected with the impossibility to
predict the evolution of the pandemic and its consequent economic repercussions
Italian GDP estimate on the basis of four different
scenarios
1.722,8 (bn € and var %), 2019-2021
Using the growth rates forecast by
1.639,8
The European House – Ambrosetti
1.599,9
1.568,9 (-10.8% for 2020 and between
1.560,4
1.537,1 +1.5% and +6.7% for 2021) and
+6.7
+4.1 reproducing the average annual
+2.1
+1.5 growth rate for the period 2000-
2019 (of +0,4%), Italy will
2019 2020 2021
2021 –- third
terza 2021 2021 -
– lockdown 2021
2021 –- no
no 2021
2021 -– no return to pre-crisis levels
wave March-
ondata fra until spring,fino
lockdown no lockdown but
lockdown malockdown and
lockdown e
April third wave vaccine available
vaccine available between 2035 and 2047
marzo e aprile a primavera, vaccino vaccino
at end of year by Q3
no terza universalmente universalmente
ondata diffuso solo da diffuso da q3
fine anno
10
Source: The European House – Ambrosetti data elaboration, 2020Inserire titolo
The impact delCOVID-19
of the documento
emergency on the Italian economic scenario
An Italian growth rate of 5.2% in 2021 is an ambitious result: since 1995 there
have never been three consecutive quarters with a growth rate higher than 1.0%.
If the GDP were to return to a growth situation in January If the GDP were to return to a growth situation in the
2021, in order to reach an annual growth of 5.2%, the second quarter, in order to reach an annual growth of
variation in the current economic context would have to 5.2%, the variation in the current economic context would
be 4.5%. have to be greater than 7%.
Average quarterly GDP growth (bn €) Average quarterly GDP growth (bn €)
447,7
432,1
413,5 418,1
395,7 390,3
378,6
362,3 362,3 364,1
+4.5% +7.1%
+4.5% +7.1%
+4.5% +7.1%
+4.5% +0.5%
2020q4 2021q1 2021q2 2021q3 2021q4 2020q4 2021q1 2021q2 2021q3 2021q4
Source: The European House – Ambrosetti elaboration of IMF data, 2020 11Inserire titolo
The impact delCOVID-19
of the documento
emergency on the Italian economic scenario
The resources available will be unprecedented
Distribution over time of Recovery and
▪ The NextGenerationEU plan provides for the Resilience Facility resources (bn €)
distribution of €750 bn to European countries, on
the basis of a series of parameters:
27,5 203,0
❑ Population; GDP per capita; for the first two
30,6
years, average unemployment rate between
2015 and 2019 39,4
❑ In 2023, this criterion will be replaced by the 43,0
reduction in national GDP between 2020 and
2021 due to the pandemic.
37,5
▪ Within the Recovery and Resilience Facility – the
25,0
main financing channel – Italy will receive approx.
€65.4 bn in subsidies and €127.6 bn in loans
▪ The disbursement of the funds will not be 2021 2022 2023 2024 2025 2026 Total
immediate: between 2021 and 2022 approx. 30%
React EU
of the total funds will be distributed. Recovery and Resilience Facility: Loans
Recovery and Resilience Facility: Subsidies 12
Source: The European House – Ambrosetti elaboration of Nadef data, 2020Inserire titolo
The impact delCOVID-19
of the documento
emergency on the Italian economic scenario
This is a historic opportunity: the cost of the public debt is at a minimum
Yield of BTP (multi-year treasury bonds) at 10 years (%),
25 1870-2017
20
15
10
5
0
1914
1970
1870
1874
1878
1882
1886
1890
1894
1898
1902
1906
1910
1918
1922
1926
1930
1934
1938
1942
1946
1950
1954
1958
1962
1966
1974
1978
1982
1986
1990
1994
1998
2002
2006
2010
2014
Source: The European House – Ambrosetti elaboration of National Bureau of Economic Research, 2020 13Inserire titolo
The impact delCOVID-19
of the documento
emergency on the Italian economic scenario
The proposals of The European House - Ambrosetti Club to restart the
country
To guarantee operational quality in strategic To break the vicious circle caused by functional
8 1
projects to be launched illiteracy
To invest in scientific research in areas The 8 Define an inclusive strategic vision that
with great potential for relaunching Italy 7 2 can inseminate the vast majority of
and “allowing the world to live better”
proposals of Italian sectors
The European
House -
Reinforce the country’s Ambrosetti to Deal with Europe as an equal and
6 3
industrial fabric with proposals to improve it
restart Italy
Decide on and implement an industrial 5 4 Redesign the Italian P.A. around the
strategy for Italy within the new context public and businesses
14Inserire titolo
The impact delCOVID-19
of the documento
emergency on the Italian economic scenario
Regarding the strategy for relaunching the country
there are two approaches:
1. To adopt a domestic strategy to
finance the debt
2. To pursue a strategy with some European countries
in order to reduce fiscal competition within the EU
15Inserire titolo
The impact delCOVID-19
of the documento
emergency on the Italian economic scenario
1 The average interest rate on government bonds will decrease : 40.2% of
the outstanding stock was issued before the QE, at higher rates than the current
ones Stock of public debt* outstanding and average interest rate per year of issue
(billions of euros, left axis, and interest rate, right axis), 1993-2020
300 PRE-EURO ENTRY INTO THE EUROZONE GREAT RECESSION AND ECB QUANTITATIVE EASING 10
9
250 SOVEREIGN DEBT CRISIS 8
200 7
6
150 5
4
100 3
50 2
1
0 0
1998
2016
1993
1994
1996
1997
1999
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2017
2018
2019
2020
4.0% of the current 25.8% of the current stock 59.8% of the current stock
10.4% of the current stock issued
stock issued issued issued
Issues
40.2% of the current stock
If we restructured the outstanding debt issued before 2015 (40.2% of the total) at today's weighted average rate (1.1%),
we would obtain savings of almost € 28 billion per year in lower interest
(*) The analysis does not consider bonds with a duration equal to or less than one year. 16
Source: The European House – Ambrosetti elaboration of Bank of Italy data, 2020Inserire titolo
The impact delCOVID-19
of the documento
emergency on the Italian economic scenario
1 A significant element, which reduces the cost of the public debt, is that a
growing share of it is held by the ECB
Public debt held by the European Central Bank*
(%), December 1998 – December 2020
25
23,0
20
15
10
5
0
apr-08
feb-00
apr-01
mag-05
feb-07
feb-14
apr-15
lug-99
set-00
mar-04
ott-04
set-07
mar-11
ott-11
mag-12
set-14
mar-18
ott-18
mag-19
giu-02
lug-06
giu-09
lug-13
giu-16
gen-17
lug-20
gen-03
ago-03
gen-10
ago-10
ago-17
dic-98
nov-01
dic-05
nov-08
dic-12
nov-15
dic-19
(*) Within the Quantitative Easing programs the purchases are materially made by the National Central Banks. This also explains the increase
in the share of debt held by the Bank of Italy as of March 2015, when the Public Sector Purchase Program (PSPP) was launched.
Source: The European House – Ambrosetti elaboration of Bank of Italy data, 2020 17Inserire titolo
The impact delCOVID-19
of the documento
emergency on the Italian economic scenario
2 Nine small countries attract over 42% of the overall stock of Foreign Direct
Investments
The Netherlands FDIs entering the countries under 42,9%
consideration
Luxembourg (% of world total), 2018
Hong Kong
3,2%
Switzerland
GDP of the countries under
Singapore consideration
(% of world total), 2019
Ireland
0,6%
Bermuda
Population of the countries under
Virgin Islands consideration
(% of world total), 2019
Cayman Islands
Source: The European House – Ambrosetti elaboration of IMF and World Bank data, 2020 18Inserire titolo
The impact delCOVID-19
of the documento
emergency on the Italian economic scenario
2 Overall, almost 40% of the profits of multinationals are registered in tax
havens through profit shifting…
Profit shifting to the main tax havens (billions of dollars), 2017
126
98 98 In 2017, more than $741
95
bn in profits were
79 78
66 transferred to tax havens
38
20 18 13 11
Svizzera
Bermuda
Malta
Caraibi
Singapore
Paesi Bassi
paradisi
Irlanda
Lussemburgo
Belgio
Hong Kong
heavens
Porto Rico
Netherlands
Fiscal
Belgium
Ireland
Switzerland
Luxemburg
fiscali
Puerto
Other
Altri
19
Source: The European House – Ambrosetti elaboration of Torslov, Wier and Zucman data, 2020.Inserire titolo
The impact delCOVID-19
of the documento
emergency on the Italian economic scenario
2 … with a considerable loss in tax revenues
Loss in tax revenues due to profit shifting ($ mln), 2017
70,0
64.8 ▪ Countries that are not worldwide tax
60,0 havens lose $212 bn in tax revenues
▪ The EU countries lose almost $54 bn
50,0 per year
▪ Of this sum, over $44 bn is due to
40,0
profit shifting to other European
30,0
countries
20,0 19.6 18.2
13.3
10,0 6.4
4.2
0,0
USA Germany UK France Italy Spain
From EU transferred profits From non-EU transferred profits
Source: The European House – Ambrosetti elaboration of data from OECD and Missing profit of nations 20
database, 2020Inserire titolo
The impact delCOVID-19
of the documento
emergency on the Italian economic scenario
Valerio De Molli
Managing Partner and CEO, The European House – Ambrosetti
Website: www.ambrosetti.eu
E-mail: valerio.de.molli@ambrosetti.eu
Twitter: @ValerioDeMolli
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