Economy, inflation is less scary. Growth between monopolies and energy – WWN

The well-known refrain. 2024 is being voted on across half the world, including Europe and the United States. And who will be in the White House and in Brussels will make the difference. We Italians know this well, we are reminded of this by the 100 billion already collected for the Pnrr and the 100 billion still to be collected. So what will happen to the economy in 2024?

The first thing to distinguish uncertainty from risk. Uncertainty paralyzes, the risk can be considered and in some cases measured in order to act accordingly. Elections are often alibis. Alibi for not doing. Especially on the part of politics.

And yet inflation, interest rates, fiscal and budget policies in Italy as in other countries will continue to matter a lot. To ensure that risks can be responded to with appropriate strategies.

Even the return of geopolitics, wars, invasions, has a clear basis in the economy. Widespread prosperity has allowed the strengthening of regimes such as the Russian one. China’s strength and its interconnection with the rest of the world prevent us from thinking about retaliations that could turn into boomerangs for the West.

We have missed the fact that economic power does not necessarily transform itself into an engine of peace. But it can be used for war. As well as to consolidate monopolies. And monopolies are the real enemy of growth in the only truly open markets which are those governed by democracies.

Raw material

Rare earths are those materials that are indispensable for the production of batteries and in any case for technological manufacturing, from wind turbines to electric cars. According to data collected by the European Commission offices, Beijing holds 65% of the extraction of these materials and 85% of the refining.

35% of rare earths in China. This abundance has been used to push other nations out of the market by charging prices that are too low for other countries to find it profitable to extract them or invest in the technologies to do so.

Here Europe needs to move away from declarations of intent. While China was consuming and consuming coal as much as it could, polluting the world, it was concerned with consolidating its primacy in the production of electric cars, photovoltaic and wind power systems.

And the countries producing fossil fuels are doing the same, happy to sell us oil and gas, cash in and invest in renewable sources. Another good reason to strengthen Europe, not weaken it. At stake is something called energy.

The energy

Yes, the energy. That engine of economic activities that we have taken for granted for too long. And instead after the invasion of Ukraine and today with the crisis in Israel it has returned as a destabilizing element. The Russian shock that seemed to have subsided returned in light of the invasion of Gaza.

According to ISPI researchers, at the moment the effects are still relatively low. Demand for oil seems abundantly satisfied. And only if the economic crisis were to prolong in a Europe (and Italy) poor in raw materials and fossil fuels would uncertainty grow.

The choice to base the Next Generation EU (at the basis of our Pnrr) on digital and ecological transition must be strengthened. And make sure to reduce the risks from countries that are not democracies and which could one day decide, as regimes do, overnight to cut off supplies and technologies.

Inflation

Not a comforting picture. But only apparently. Already in 2022 and throughout this year, the pessimism about how the economy of the Greater West would fare was palpable. Energy prices and inflation generally undercut wages and low incomes. They called into question public and private spending.

Since March 2022, the Federal Reserve, followed closely by the European Central Bank, had begun a powerful rate hike. What does it mean to make those investments and consumption that are the only antidotes to the recession more expensive in order to stop the rise in prices.

But the Western economy has proven to be much more reactive. Once again, open markets and competition were the antidotes to objectively difficult situations.

Inflation in the United States and Europe has stopped. In the United States halved. And America grew by 5.2% in the third quarter, Chinese percentages we would have once said. Europe, accustomed to anemic growth, should settle at a meager 0.6%. But here too inflation seems to be starting to give a break.

Growth

Now comes the less easy part. The Federal Reserve, led by Jerome Powell, was certainly helped by having found an ally in Biden and his Inflation Reduction Act (IRA). An alliance built on hundreds of billions injected into the economy to increase competitiveness, support growth and try to tame inflation.

Christine Lagarde’s ECB will have to demonstrate that it knows how to look after prices but also not to depress the economy. A task complicated by having to deal with at least 20 eurozone countries that join the single currency, if not all 27 members of the Union. But just as the ECB was even too quick to increase rates, it will have to be equally quick to understand how a restrictive policy could undermine hopes of recovery.

Italy

It’s Italy? It moves, as we know, weighed down by its enormous debt which forces it to pay almost 100 billion in interest a year to those who lend us money to keep the State functioning. The government has launched a maintenance budget measure. But in the Budget it is difficult to find elements to boost the economy.

We don’t talk about competition. Indeed, between taxis and beach resorts, the direction seems to be to safeguard incomes and corporations which are the cause of inflation and rising prices. According to announcements, 2024 should be the year of the restoration of Industry 4.0 in an enhanced version. There is reason to hope so because it was the provision that most facilitated investments and modernization of the industrial system in past years.

It is a mistake to continue to think that Italy has a problem of money and resources. With a trillion in public spending we should instead start spending better. And it would be the best aid to recovery: citizens and businesses that have continued to produce wealth in recent years would be convinced that their money is and will be well used.

And if geopolitics is back, even in Italy we must understand how decisive being in Europe has been and will be. Count this in what remains the most important economic area in the world (more than China and the United States, just to be clear), and where all companies and states want to be there. Question of values ​​and strategies. More than money. For a relatively small country like Italy or we win together with Europe. Or the future will be more uncertain. Not with more risks.

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