Photo: Getty / Roberto Serra / Iguana Press
BofA’s Europe economists Raffaella Tenconi and Laurence Boone are lowering their forecast for 2012 Italian GDP to -1.8 per cent growth in 2012 from -1.4 per cent and 2013 estimates to -0.6 per cent from -0.4 per cent. These numbers compare with consensus figures of -1.5 per cent growth in 2012 and 0.1 per cent growth in 2013.On unemployment, they write that their base case sees the rate “stabilising at 11.5% in the first half of next year,” higher than the highest recorded rate in the past three decades, which Italy experienced in 1998 with 11.4 per cent unemployed. For reference, the latest unemployment data out of Italy has the current rate at 9.8 per cent. Further, according to the two economists, worsening economic conditions “could push the unemployment rate as high as 13% by late 2013.“
In a note to clients this morning, the economists explain a key driver behind their decision on growth: two recent earthquakes in Italy with still-ongoing aftershocks which have the potential for significant economic disruption.
Here’s BofA’s explanation:
Two earthquakes hit the Emilia region in the northeast of Italy in May, inflicting extensive damage on one of the most industrialised parts of the country. Aftershocks continue to be recorded, adding to uncertainty over when production will resume. We expect an immediate impact on industrial output, as companies remain shut, and a sizeable impact on profitability, undermining companies’ ability and willingness to invest.
The impact on capex is likely to be accentuated by the confidence shock, especially at a time when the eurozone fiscal crisis continues to deteriorate. We thus lower our estimates for investment to -8.4% in 2012, from – 6.6% previously, and to -6.6% in 2013, from -3.9%. We keep our expectations for household spending essentially unchanged at -2.8% this year and -1.5% in 2013, held back by a rising unemployment rate, falling savings and tightening fiscal policy.
The BofA economists say that the way the ECB, IMF, and EU troika proceeds on policy options addressing the eurozone crisis is key because “market uncertainty has a direct and forceful impact on Italy’s growth prospects via large swings in the cost of funding, export demand and fluctuations in the unemployment rate.”
They provide this useful table laying out how each troika policy proposal would affect Italy (click to enlarge):
Photo: BofA Merrill Lynch
The new estimates released today put BofA among the most bearish on Italy.