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Economy in Brief

Italian IP Regains Its Footing in November As Covid Marks New Ground
by Robert Brusca  January 13, 2022

Italian IP rose by 1.7% in November. All sectors with saw advances in output in November. Output rose in November by 1.7% for consumer goods and by 2.0% for capital goods with intermediate goods output moving higher by 0.8%. All of these are quite strong gains.

Italian output lost 0.9% in October after a flat performance in September.

The path for Italian industrial production has been for steady gains over the past year. IP is higher on balance by 5.7% over 12 months. It is rising at a slightly higher 5.9% annual rate over six months and is slower at a 3.1% annualized rate over three months. In the quarter-to-date period, however, IP is falling at a -0.6% pace.

The sector results show highly similar growth profiles for each of the sectors on this timeline especially over the last two months. All sectors advance in November and show output declines in October. While overall output is flat in September, consumer goods output rose by a strong 3.6%. Capital goods backtracked falling by 1.1% in September as intermediate goods output advanced by 1%. In the quarter-to-date (two months of data are available for Q4), output is falling in Q4 at a small, annualized pace, of -0.6%. Capital goods and intermediate goods output are each falling QTD while consumer goods output is advancing rapidly at nearly at double-digit pace (+9.2%).

Italian IP trends show the usual European pattern as the virus unfolded. Italian output was slammed in early-2020. The year-over-year losses in output diminished and gave way to small gains late in 2020. In early-2021, the year-on-year growth rate benefited from weak year-ago comparisons and surged, gradually stepping down as 2021 has progressed. Now in late-2021, Italian IP has had a number of months of steady and moderate growth of which the last four look very solid and sustainable.

Year-on-year growth in output has averaged 3.8% since August when trends began to normalize in terms of their year-over-year performance. Over these same four months, six-month growth rates in IP have averaged 4.2% and the three-month pace has averaged 4.2%. Italy seems to have settled into a period of steady growth as it continues to make up for some of the output lost to covid in the past two years but at a more sustainable rate.

However, the story does not end there. Italy like Europe continues to be at the mercy of the new Covid outbreak. Italian new cases have been surging as Omicron has swept away just about every other Covid variant globally. Italian infections are the highest it has experienced by a good margin since Covid first struck. The daily death curve has been rising, but it remains well below its past-peak and this is with a much more widespread infection pace. The clear impact of Covid in its Omicron guise is more infection with proportionately fewer hospitalizations and less death. But the virus spreads so fast and arises in such large numbers that it stall can overwhelm medical facilities despite its lower proportional rate of adverse events.

Endemic Covid? Beware the booster?
Italy is experiencing a record rapid rate of recovery from Covid too! Spain and Switzerland have begun to talk about Covid becoming endemic- something that simply will exist as a disease in the general population, like the flu. With its lesser risk of death, Covid-Omicron has become a disease some health officials think we can live with- rather than die from. And with Israel now poised for yet another round of booster shots there, the EU has the opposite stance and has warned against taking too many booster shots too soon (see here and here). The EU is concerned that too many booster shots can affect our immune system and expose us to more sickness. One notion is to hold back on boosters and use them only at the onset of cold and flu season.

All this leaves us in a quandary about what happens next. The spike high in Omicron infections is affecting growth and sending new waves of anxiety around the world. In the U.S., the cost of the most effective masks has skyrocketed as people seek better filters and apparently have become more willing to pay-up for a mask that really does some good rather than to wear the cloth masks that most of us wear that are not effective. The high transmissibility of Omicron has prompted this change. Yet, Omicron spreads fast and then recedes.

There is also some sense of there being more immunity and that the worst of the infection cycle is being put behind us – at least in some places in the U.S. that have been hit first and hard-hit like NY. Along with this, there is the view that Covid has ‘morphed’ into something we might be able to live with instead of hide from. Of course, the outlook for growth depends critically on how these views take hold. For now there is reason for guarded optimism that we could be turning some kind of real corner on the fight with the virus globally.

Commentaries are the opinions of the author and do not reflect the views of Haver Analytics.

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