During the presentation of the 2018 Export Report by SACE (the Italian export credit agency), what emerges from the words of the professionals who participated is a general sense of optimism around the Italian export for the current year.
Roberta Marracino, SACE’s Research and Communication Head, was designated to illustrate the work done by SACE in 2017 and the perspectives for export in 2018. Her speech opened with the distinction between “signals” coming from the market and “noises”: “signals” represent temporary periods of volatility and “noises” are not going to have long run consequences. The large amount of bad news that runs through the markets makes it difficult to capture this difference, as they disproportionately and artificially increase the importance of some events that turn out to be just “noises”. In order to solve the problem, the VIX index, which is considered a proxy of market’s volatility, can help us. The index, according to June 11th official data, was below the critical level (around 40) and 2008 level (around 90). This data confirms that the market’s volatility is relatively low, despite the huge changes in the relationship between countries that are occurring in this period.
The geopolitical risk index is fluctuating around low levels as well, if compared with other historical periods, despite world tensions that culminated in one of the most controversial G7 meetings in history. The huge amount of global debt, however, is the true critical signal, as it is 318% of the world’s GDP, which is way higher than the 2007 level (almost 278%). In particular, the debt is hugely increasing in developing countries, while it is growing less in the most advanced economies.
Roberta Marracino’s speech then focused on the factors that brought SACE to have a generally optimistic view of Italy’s export, talking of the so-called “half full glass”.
First, data testifies that the global economy is still going through an expansive phase and international trade, in particular, plays a fundamental role. The trade agreements that Italy has closed with Canada, or that is trying to close with Japan, Mexico, and other important players, is to strengthen growth, as they would let Italian exports reach 2,5 billions of potential customers. The “Made in Italy” quality, which is already excellent, looks to be further improving, increasing the optimism expressed by SACE. Finally, Italian exports look more flexible and diversified than ever, as it is ready to answer rapidly in case the tension of a potential trade war should escalate (which we will talk about later).
There are a number of factors, however, that reduce the enthusiasm. The Euro/USD exchange rate has been particularly volatile during 2018. According to SACE’s estimate, a 10% increase of the Euro on the Dollar would lead to a 1,6% reduction in the export. The critical level, above which the European export is not competitive anymore, is 1,3 Euro/USD.
Roberta Marracino continued highlighting a series of factors that had a negative impact of national export. The price competitiveness of our country is absolutely unsatisfactory because the elevated unitary cost of labour in the manufacturing sector, in particular, when compared with EU’s leading economies, like Germany. Italy, moreover, shows a huge logistic gap with other European countries, which make companies suffer 13 billion euros of unnecessary costs. The investments in infrastructures in our country are still not enough. Investing more has become a real necessity, starting with maritime and port facilities, since 90% of the goods are traded by sea.
Finally, Roberta Marracino opened a huge parenthesis on protectionism and the consequences it may have on trade and economic growth in general. The probability that the Trump’s tariffs have to cause a proper trade war is still low (between 5% and 10%), according to SACE, despite the negative conclusion of the G7 in Canada. The majority of actions and reactions would just be part of a negotiating process, where the huge U.S. consumer market is used to renegotiate the trade agreements. In the case of an extremely negative scenario, the trade war would hurt all the countries involved, starting from the U.S., whose GDP growth rate would halve.
Exports are probably the most responsible for Italy’s GDP growth after the financial crisis. SACE estimates that without exports, Italian GDP would be 7% less than in 2010. Last year was sensational for exports, with a 7,4% growth that had not been seen in a long time, mainly because of the extraordinary performance of investment goods. It looks almost impossible to repeat 2017 results. According to the estimates, Italian exports will grow 5,8% in 2018 and 5,2% in 2019. SACE’s outlook for national trade is positive. Despite the geopolitical tensions and all the problems we have talked about, Italian export’s growth will continue in the years to come. The most important signal launched in the conference organized by SACE is the following: in a world where we are continuously hit by negative signals, Italian exports seem not to be suffering from this, and therefore we can look forward with confidence to this important aspect of our economy.