Bank of Italy States Geopolitical Fragmentation
The global economy is going through a period of uncertainty fueled by armed conflicts, as well as the difficulties of the Chinese economy, which has been hit by the real estate crisis
“Geopolitical fragmentation causes a decrease in the degree of economic integration between countries and regions of the world.” This was stated by the Governor of the Bank of Italy Fabio Panetta in his speech at the 30th Congress of Financial Market Operators Assiom Forex. Speaking about the prospects for the international economy, the head of the Italian Central Bank expressed serious doubts about the consequences in the medium and long term, if this geopolitical division continues in the coming years: “This reorganization,” Panetta said, “will have significant implications in the medium and long term. The decline in the international exchange of goods, services, technology, and ideas will eventually lead to a reduction in the efficiency of production and to shrinkage of potential growth of the world economy, which has already been declining for several years,” added the Governor of the Bank of Italy, according to whom the world economy remains very sluggish.
“International trade,” Panetta emphasized, “was stagnant in the fourth quarter of last year as well. A moderate recovery is expected this year, but growth rates will be much slower than in the two decades before the pandemic. The tightening of monetary policy implemented simultaneously by the central banks of major economies,” he emphasized, “is contributing, along with lower energy prices, to a sharp decline in inflation, but continues to slow demand, with the exception of the United States.”
As for the global economy, we are going through a period of uncertainty fueled by armed conflicts, as well as the difficulties of the Chinese economy hit by the real estate crisis. In addition, Panetta stated that “impediments to shipping in the Red Sea, through which 12% of world trade passes, lead to the use of alternative routes for goods coming from Asia. This delays deliveries and increases transportation costs, especially to European destinations.”
Of great concern is the situation with economic activity in the eurozone, which has been in “stagnation” for five quarters due to weakness in both external and domestic demand. “The exhaustion of possibilities caused by the post-pandemic work resumption,” emphasized the Governor of the Bank of Italy, “as well as the ongoing monetary constraints, plus the atmosphere of uncertainty are slowing down business investment and household purchases. Most industrial sectors are in recession.”
As for the economic situation of individual eurozone countries, industrial production is in sharp decline in Germany, where “weakening purchases from China matter more than elsewhere, as well as reduced activity in high-intensity energy sectors and the fragmentation of global production chains.” The problems in Europe are growing by the month: “Economic weakness spreads from manufacturing to services.” The construction sector is also experiencing a downturn.
And the conclusion reached by the head of Italy’s Central Institute is disturbing: “The latest information does not foresee a significant cyclical recovery in the short term,” Panetta said.