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Conte's Meddling Won't Help Italy's Economy – BNN

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(Bloomberg Opinion) — The Covid-19 pandemic has dealt a serious blow to Italy’s economy, which was already struggling with high public debt and low growth. The government now risks making matters worse: A string of high-profile interventions, the latest in Telecom Italia SpA, has the potential to scare off investors just when the economy needs them most.

Since the early 1990s, successive Italian governments have sought to attract foreign capital through a combination of privatizing companies and passing structural reforms. From banking to telecommunications, politicians opened up entire sectors, while also making it easier for businesses to hire and fire workers. This process remains incomplete, especially with regard to modernizing the public administration. But, from left to right, there had been a growing appreciation for the role that private investors could play in creating jobs and boosting competition.

Today’s governing parties, the left-wing Democrats and the populist Five Star Movement, are much warier of the free market. Prime Minister Giuseppe Conte seeks a bigger role for the state, which he thinks can do better than entrepreneurs in boosting the economy and protecting national interests. He is passing laws that constrain freedom of enterprise — including a temporary ban on dismissing workers — and interfering with the decisions of some company boards.

These actions are not merely fixes for the temporary difficulties of dealing with the virus, but are part of a long-term, strategic vision — one that may have profound consequences for the way the Italian economy operates.

The latest round of interference concerns telecommunications giant Telecom Italia, which is seeking to spin off a minority stake in its fixed-line network and sell it to investors including private equity firm KKR & Co. The prime minister reportedly intervened to delay this deal, as he is seeking ways to create a single-network company that is not controlled by Telecom Italia and is open to all operators. The government now seems to support plans to merge Telecom Italia’s network with smaller rival Open Fiber SpA, as it believes it would speed up modernization of Italy’s broadband networks while avoiding duplicate investments.

Rome fears that Telecom will abuse its role as the majority owner of the network, curtailing competition and not investing in improvements of service. This need not be the case, especially if Italy chose to strengthen its regulator, AGCOM. But even if the government were right in seeking a different ownership model, it should still preserve Telecom Italia’s property rights by bidding for control of the network as any other private investor would do. Alternatively, it should let management get on with their decision rather than putting unsolicited pressure on them. 

The Telecom Italia tale fits a broader story. Last month, Conte announced he was forcing the Benetton family out of Autostrade per l’Italia SpA (Aspi), following the 2018 collapse of a bridge in Genoa that killed 43 people. The government has not yet sketched out all the details of this operation, which remains legally and financially dubious. But this charade gave the impression of a country that is little concerned with the interests of private investors, including the other shareholders and bondholders in Atlantia SpA, Aspi’s controlling company.

The government is playing with fire. If investors come to believe that Rome acts arbitrarily, they will start demanding a discount for holding Italy’s assets. For a government managing a large sovereign debt, with little room to take over companies and invest in them, this is not a risk worth taking.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Ferdinando Giugliano writes columns and editorials on European economics for Bloomberg View. He is also an economics columnist for La Repubblica and was a member of the editorial board of the Financial Times.

©2020 Bloomberg L.P.

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31.4 per cent spring slide for a U.S. economy likely to shrink in 2020 – CTV News

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WASHINGTON —
The U.S. economy plunged at an unprecedented rate this spring and even with a record rebound expected in the just-ended third quarter, the U.S. economy will likely shrink this year, the first time that has happened since the Great Recession.

The gross domestic product, the economy’s total output of goods and services, fell at a rate of 31.4% in the April-June quarter, only slightly changed from the 31.7% drop estimated one month ago, the Commerce Department reported Wednesday.

The government’s last look at the second quarter showed a decline that was more than three times larger than the fall of 10% in the first quarter of 1958 when Dwight Eisenhower was president, which had been the largest decline in U.S. history.

Economists believe the economy will expand at an annual rate of 30% in the current quarter as businesses have re-opened and millions of people have gone back to work. That would shatter the old record for a quarterly GDP increase, a 16.7% surge in the first quarter of 1950 when Harry Truman was president.

The government will not release its July-September GDP report until Oct. 29, just five days before the presidential election.

While President Donald Trump is counting on an economic rebound to convince voters to give him a second term, economists said any such bounce back this year is a longshot.

Economists are forecasting that growth will slow significantly in the final three months of this year to a rate of around 4% and the U.S. could actually topple back into a recession if Congress fails to pass another stimulus measure or if there is a resurgence of COVID-19. There are upticks in infections occurring right now in some regions of the country, including New York.

“There are a lot of potential pitfalls out there,” said Gus Faucher, chief economist at PNC Financial Services. “We are still dealing with a number of significant reductions because of the pandemic.”

In 2020, economists expect GDP to fall by around 4% , which would mark the first annual decline in GDP since a drop of 2.5% in 2009 during the recession triggered by the 2008 financial crisis.

“With economic momentum cooling, fiscal stimulus expiring, flu season approaching and election uncertainty rising, the main question is how strong the labour market will be going into the fourth quarter,” said Gregory Daco, chief U.S. economist at Oxford Economics.

“With the prospect of additinal fiscal aid dwindling, consumers, businesses and local governments will have to fend for themselves in the coming months,” Daco said.

The Trump administration is forecasting solid growth in coming quarters that will restore all of the output lost to the pandemic. Yet most economists believe it could take some time for all the lost output to be restored and they don’t rule out a return to shrinking GDP if no further government support is forthcoming.

So far this year, the economy fell at a 5% rate in the first quarter, signalling an end to a nearly 11-year-long economic expansion, the longest in U.S. history. That drop was followed by the second quarter decline of 31.4%, which was initially estimated two months ago as a drop of 32.9%, and then revised to a decline of 31.7% last month.

The slight upward revision in this report reflected less of a plunge in consumer spending than had been estimated. It was still a record fall at a rate of 33.2%, but last month projections were for a decline of 34.1%. This improvement was offset somewhat by downward revisions to exports and to business investment.

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Economic rebound slows as Statistics Canada says economy grew 3.0 per cent in July – The Battlefords News-Optimist

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OTTAWA — The pace of Canada’s economic rebound from the COVID-19 pandemic slowed in July, and maybe even more in August, Statistics Canada says, suggesting the country is in what experts described as a long, choppy path to recovery.

Statistics Canada says real gross domestic product grew by three per cent in July, matching the agency’s preliminary estimate and economists’ expectations, but below the 6.5 per cent recorded in June, and May’s 4.8 per cent bump.

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Gains have been linked to the loosening of restrictions that forced non-essential businesses to close in March and April, but they haven’t been enough to haul the economy back to pre-pandemic levels.

Overall, Statistics Canada said the economy in July was about six per cent below its pre-pandemic level in February, even if some sectors like retail and real estate have recouped their losses and then some.

Looking at August, the statistics agency said growth likely continued albeit at a slower pace as it provided a preliminary estimate of a one per cent climb in GDP for the month.

“That’s suggesting the steam in the recovery is going away and so, this for me is suggesting that we might be moving from a quick rebound phase of the recovery to a more challenging phase,” said TD senior economist Sri Thanabalasingam.

The August figure will be finalized late next month.

The path of the recovery over the coming months will be tied to the path the pandemic takes, which could lead to rollbacks of reopening measures.

Rising case counts have prompted such calls as the country heads into what several public health officials say is a second wave of the novel coronavirus pandemic.

The increase in COVID-19 infections, coupled with the August figure suggests the sharp rebound in the third quarter won’t carry over to the final three months of the year, said CIBC chief economist Avery Shenfeld.

“Easing up on COVID-19 restraints fed into solid Canadian GDP gains in July and August, but the concerns now are whether we will pay for some of that greater openness,” Shenfeld wrote in a note.

The Conference Board of Canada said health measures and testing should prevent another full shutdown of economic activity earlier this year, but warned of localized lockdowns as one hurdle.

The pandemic is going to flatten the recovery curve for the next year at least, said Pedro Antunes, the organization’s chief economist.

“We’re going to be creating fewer jobs on a monthly basis going forward, we’re going to see the increases in economic activity or GDP being much more subdued in terms of their increases overall,” he said.

The Conference Board’s outlook expected the unemployment rate won’t fall back to its pre-pandemic levels until 2025.

Thanabalasingam said it could be early 2022 before before the economy gets back to where it was prior to COVID-19.

July’s GDP report from Statistics Canada noted that all 20 industrial sectors it tracks posted increases in July, with agriculture, utilities, finance, insurance and real estate sectors recouping losses suffered since the start the pandemic.

Manufacturing grew 5.9 per cent in July, following a 15.1 per cent expansion in June as more operations ramped up production, but still remained about six per cent below where it was pre-pandemic.

The hard-hit accommodations and food services sector posted a third consecutive month of double-digit increases, jumping 20.1 per cent in July.

Thanabalasingam said despite the bump, the amount of activity in the industry was about two-thirds of where it was in February, as more people went shopping and case numbers dropped.

“There’s still a very, very long way to go, even though they’re posting these strong growth rates,” he said.

“My worry is that as caseloads continue to rise and some of these provinces think about rolling back some of those reopening measures . . . then is this as good as it could get for these sectors?”

The health care and social assistance sector rose by 3.7 per cent in July, as more doctors, dentists and diagnostic laboratories reopened in line with the rollback of restrictions.

This report by The Canadian Press was first published Sept. 30, 2020.

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U.S. economy plunges 31.4 per cent in spring but big rebound expected – CTV News

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WASHINGTON —
The U.S. economy plunged at an unprecedented rate this spring and even with a record rebound expected in the just-ended third quarter, the U.S. economy will likely shrink this year, the first time that has happened since the Great Recession.

The gross domestic product, the economy’s total output of goods and services, fell at a rate of 31.4% in the April-June quarter, only slightly changed from the 31.7% drop estimated one month ago, the Commerce Department reported Wednesday.

The government’s last look at the second quarter showed a decline that was more than three times larger than the fall of 10% in the first quarter of 1958 when Dwight Eisenhower was president, which had been the largest decline in U.S. history.

Economists believe the economy will expand at an annual rate of 30% in the current quarter as businesses have re-opened and millions of people have gone back to work. That would shatter the old record for a quarterly GDP increase, a 16.7% surge in the first quarter of 1950 when Harry Truman was president.

The government will not release its July-September GDP report until Oct. 29, just five days before the presidential election.

While President Donald Trump is counting on an economic rebound to convince voters to give him a second term, economists said any such bounce back this year is a longshot.

Economists are forecasting that growth will slow significantly in the final three months of this year to a rate of around 4% and the U.S. could actually topple back into a recession if Congress fails to pass another stimulus measure or if there is a resurgence of COVID-19. There are upticks in infections occurring right now in some regions of the country, including New York.

“There are a lot of potential pitfalls out there,” said Gus Faucher, chief economist at PNC Financial Services. “We are still dealing with a number of significant reductions because of the pandemic.”

In 2020, economists expect GDP to fall by around 4% , which would mark the first annual decline in GDP since a drop of 2.5% in 2009 during the recession triggered by the 2008 financial crisis.

“With economic momentum cooling, fiscal stimulus expiring, flu season approaching and election uncertainty rising, the main question is how strong the labour market will be going into the fourth quarter,” said Gregory Daco, chief U.S. economist at Oxford Economics.

“With the prospect of additinal fiscal aid dwindling, consumers, businesses and local governments will have to fend for themselves in the coming months,” Daco said.

The Trump administration is forecasting solid growth in coming quarters that will restore all of the output lost to the pandemic. Yet most economists believe it could take some time for all the lost output to be restored and they don’t rule out a return to shrinking GDP if no further government support is forthcoming.

So far this year, the economy fell at a 5% rate in the first quarter, signalling an end to a nearly 11-year-long economic expansion, the longest in U.S. history. That drop was followed by the second quarter decline of 31.4%, which was initially estimated two months ago as a drop of 32.9%, and then revised to a decline of 31.7% last month.

The slight upward revision in this report reflected less of a plunge in consumer spending than had been estimated. It was still a record fall at a rate of 33.2%, but last month projections were for a decline of 34.1%. This improvement was offset somewhat by downward revisions to exports and to business investment.

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