Italy - Bringing new energy to the economic recovery?
Inflation: an old-new tale
Istat – the Italian statistical office - has announced that in October 2022 the national consumer price index recorded a level of +11.8% on an annual basis. Inflation growth is mostly due to the prices of energy goods (+71.1%); without considering energy, inflation is +5.9%. To find absolute inflation higher than 6% you have to go back 30 years (6.3% in 1991), determined by high public debt and interest rates. And to find inflation above 10%, you have to go back 40 years, to the period between 1973 and 1984, again triggered by an energy crisis. So Italy has previous experience of situations of high inflation driven by the price of energy and cost linked to the interest rate on public debt, generating stagflation. Is the situation different now, or should we expect a sharp recession?
The confidence for the economic climate in Italy, which had experienced a 'rebound effect' over the course of last year following the overcoming of the most critical period of the health emergency, has now returned toward similar levels as in 2020. A more pronounced dissatisfaction is evident: compared with 6% who say they are ‘very’ satisfied with the current economic situation, 17% state they are ‘not at all’ (while 26% say they are a little unsatisfied and 51% say they are satisfied ‘enough’)[1]. The proportion who have been directly affected by an unfavourable job situation is stable compared to the past, as is unemployment – the worsening standard of living situation is mainly related to inflation.
In fact, concern about the increasing cost of living touches almost everyone (80%), and more than two-thirds of households have activated strategies to alleviate the impact on the family budget. These strategies lead to the search for products on promotion or stock formats, changing store or channel, reducing waste, always trying to keep up the quality and the quantity of the consumption[2].
So far, Italy is witnessing just a soft deceleration in consumption. Why? First of all, Italian families and family businesses have nearly 2000 billion euros in liquid assets, i.e. more than the yearly national GDP: this makes them look at the short-term future with peace of mind. Moreover, the huge amount of liquid assets offers budget elasticity to consumption. Certainly, people are now more focused on sobriety, but it is important to emphasize that Italians have a really strong desire for normality after the dark period of lockdown: there is a strong will to keep a comfortable standard of living and consumption, as evidenced by the record numbers for tourism and out-of-home consumption during summer 2022, which in many cases appear (surprisingly) to be higher than in 2019[3].
Traditional energy generates inflation, can new energy be the solution?
In any case, the most serious problem Italians will face in the coming months is 'expensive energy'. Are Italians now reconsidering the investment in renewable energy? Not at all: renewable sources of energy were once seen as a future goal, now – because of the energy emergency – they are perceived as a solution to be adopted as soon as possible. Renewable energies are viewed with positive attention by Italians: for 48% they are the future and 44% of Italians have a positive opinion of them: less than one Italian in ten has doubts about their importance; this strong consensus is also linked to the widespread belief that a higher presence of renewable energy could calm the cost of energy (47%)[4].
Energy is now at the centre of the debate. For several years renewable energy has been seen as the solution to increase decarbonization, it has now acquired an additional and relevant benefit: it is becoming an important asset of national energy security. One reason underpinning this: there is a noticeable move towards taking action in the institutional political world: 56% of Italians have noted the increased commitment to boosting renewables, while only 11% believe that the commitment of the political community has actually decreased.[5]
This evidence is counterintuitive if we look at the 2022 electoral campaign: sustainability and renewable energy was not one of the main topics, and the vote rewarded the party that most opposed the previous government. This can be explained by the fact that there was a very quick election campaign during the summertime, which left little time for debate and was more focused on the coalition leaders. In any case, we see some signs of the growing importance of sustainable issues: younger people voted more than other generations for the “5 Stelle” party (it came first among 18-24-year-olds and third overall) the party most involved in sustainability issues and in social inclusion, and less for the “Fratelli d’Italia” party, which is usually less associated with these issues.[6]
Is this the time to act, to dare to take a new path?
The current crisis has amplified the importance of speeding up the energy transition, and the perception of Italians is that “we are not doing enough” when it comes to renewable energy, building a more sustainable country, and reducing risks related to energy shortages and the subsequent inflation.
In this situation Italians don’t feel depressed and passive, they feel full of energy (personal of course!), and they want to act for a better future. For example, to reduce the impact of expensive energy on life there are two prevailing strategies: on the one hand, pay more attention to conscious consumption to avoid energy waste (46%), and on the other hand - with an identical percentage – they are interested in energy self-production. ‘Prosumerism’ (production and consumerism) could really change one's lifestyle and the family budget. This attitude underlines again that people want to be proactive.
The Covid experience demonstrates that an entire country (and a continent) was able to change habits and behaviours in a short time.
It's time to think of new things and it’s time to be daring: the more inflation proceeds, the more people are open to the new, confirming the great desire to react and not to give up
After all, every Italian seems to think we have come out of Covid and that we will come out of inflation and energy shortages. Can we use this new crisis to continue build a better, safer, sustainable future?
Andrea Alemanno
Notes
[1] https://www.ipsos.com/it-it/giornata-mondiale-risparmio-indagine-acri-ipsos
[2] https://www.ipsos.com/it-it/inflazione-italia-preoccupazione-italiani-aumento-prezzi
[3] Picture from ‘BariToday’ - Boom of tourist presences in Puglia in 2022: the pre-pandemic Covid numbers recovered. This is the analysis carried out by the Tourism Observatory of Puglia Promozione. The region has achieved, for this year, results that had been set for 2025
[4] https://youtu.be/E3P5QYEBF-o
[5] https://forumqualenergia.it/sala-stampa/