The governor of Bank of Italy: “shadow economy worries”. And on inflation he warns: “The recession alone will not bring prices in line with our target”
On the front of fight against evasion “there has been a significant improvement in recent years, certainly also linked to digitization, to the fact that there are i electronic payments, that there is a check. We must continue, we cannot stop”. Thus the governor of the Bank of Italy, Ignazio Visco, in answering questions during a round table organized by the Ambrosetti Club. Then, he adds, “there are differences of points of view when it comes to issues micro or macro, that is, whether it’s small cash expenditures or whether it’s a broader evasion problem through systems to be monitored. But we have to go on”. “The shadow economy worries me”, Visco insists and, “if you manage to make the shadow economy grow as well, you will improve. We need to continue the activity against evasion “.
GDP – The expected GDP growth close to 4% in 2022 “is a considerably higher figure than we expected a year ago”, underlines the governor. “It’s good news – he underlines – and product levels prior to the pandemic have been recovered. But – adds Visco – we are still 3 abundant points below the 2008 level, when the global financial crisis hit. We are the only advanced countries that have not recovered. It is a serious problem, we need to push growth”.
INFLATION – As for theinflation “I don’t agree with some statements which argue that only a more or less deep recession in the euro area will allow inflation to be brought back in line with our objective of stable prices”, says Visco. “On the other hand, I believe it entirely possible that, as is happening in other countries and as is moreover in line with our forecasts, the growth in prices, which is already showing signs of decline, could return to 2% – he explains – without our measures cause particularly serious damage to productive activity and employment, which would end up making it more difficult to achieve our mandate in the medium term”.
“Price stability – underlines Visco – also requires that in all countries, and in particular in those where the public debt is already particularly high, the state accounts are kept under control. Budget policies – he says – can certainly contribute, with temporary and targeted interventions, to alleviate the effects of inflation on the weakest segments of the population, but this should take place through a redistribution among income recipients, containing the weight of the adjustment on future generations”.
“This is essential both to avoid overheating of demand and a slower return of inflation and to prevent risks to financial stability associated with perceptions, even if not entirely shared in substance, regarding the sustainability of public finances”, he said still Visco. “Real wages must grow” but “the method” for doing so “is productivity. In the meantime, let’s protect the hardest hit” from rising inflation. According to the governor, “if we grow we recover” the lack of growth in wages.
STATE SECURITIES – “The recent government measures, based on prudence, have contributed to containing the yield differential with respect to ten-year government bonds of Germany” which today “stands at around 180 basis points, a value that is still much higher to what we estimate based on the fundamentals of our economy”, underlines the governor. “On the one hand, the increases in official rates – he explains – constitute a difficulty that is certainly manageable for public finances at the moment: thanks to its high average residual life, the average cost of debt increases in a contained and gradual manner and the debt-to-product ratio benefits the higher growth of the latter in nominal terms.On the other hand, maintaining public finances in order and, therefore, deficits reduced and decreasing over time is crucial to avoid financial tensions which, through an increase in spreads, could be reflected in further, excessive, increases in interest rates which would also weigh on the loans of households and businesses, with negative effects on investments”, adds Visco.