We spoke with the Italian director or customs about the war, the pandemic and the future of the Italian economy.
Marcello Minenna, Director General of the Excise, Customs and Monopolies Agency, has not stopped playing the role of scholar of the global economy. Over two months of war are having serious effects on the prospects for worldwide growth, which have been revised downwards. Furthermore, the feeling is that the consequences are unpredictable.
There is no doubt that the pandemic, which has had a stop-and-go effect on the world economy, has been joined by the element of war, which is heavily influencing global supply chains that have interconnections comparable to those of a dense spider web. It’s enough to point out that a study by Dun & Bradstreet, an analysis company for businesses, estimates at 400,000 the number of companies that have first-level (products) or second-level (components) suppliers in Russia, and 250,000 in Ukraine. It is a situation that creates problems everywhere, and it’s burning through the recovery glimpsed in 2021.
The new wave of contagions in China and the zero-Covid policy pursued by Beijing are closing the circle: the Chinese locomotive is also slowing down, and the world economy is in danger of collapsing.
We are facing something like a perfect storm. The effects of the Omicron variant in metropolises such as the port of Shanghai and in the most productive areas of China have been very heavy, also because a large part of manufacturing comes from that route. The pandemic-war vicious circle is very serious at the economic level, so much so that there seems to be no light at the end of the tunnel. This being said, we must not become discouraged: the adaptive capacity of the world economy has already proved itself to be remarkable in the past.
The news coming from Moscow right now doesn’t allow us to forecast any short-term solution. Even if there was one, will the consequences of the war be longer and more lasting than the pandemic?
Much will depend on how Russia is treated in the postwar period. If everyone moves towards the notion of imposing a particular line to overhaul the sanctions apparatus immediately, recovery could also be quick. After all, at the moment the sanctions are not affecting gas, and this already says a lot. On the other hand, the war has already had consequences on the routes of goods arriving from the East, due to the breakdowns on Russian railways that are part of the Eurasian railway network. However, in this case as well, the logistical system is quickly reconfiguring itself by inventing new routes, although these are less efficient (at least for now). Assuming the conflict ends, bottlenecks in the supply chains could quickly recede, and inflation – which is largely other-directed due to simultaneous shocks to energy, agri-food commodities and logistics – could also return. So I’m pessimistic about the short term – because all the factors are working towards raising inflation – but the forecast could change quickly.
In this context, what is the situation that Italy is facing?
I see a great opportunity for our country. We have come from 30 years of a globalization hangover, we have lived through the myth of it, and in the meantime we have exploited the lowering of labor costs to relocate our value chains outside national borders. As the famous economist Dani Rodrik argues, it is impossible to have democracy, globalization and national sovereignty at the same time, and now the war and the pandemic, as they’re pushing supply chains towards regionalization, give us the possibility to rebuild our value chains by bringing production back to Italy, focusing on the high rate of innovation in which our small and medium enterprises, as well as our micro-industry, excel. In a nutshell, the perfect war-pandemic storm can turn into an opportunity for our manufacturing industry.
If we go down this road, we will be in good company: Biden’s United States is already investing in this direction in order to make itself autonomous in the fields of drugs, chips and electric batteries. However, for us to do the same, we must become autonomous on the energy front, because (like other European countries) we have always been dependent on countries with high geopolitical instability and a low level of democracy: not only Russia, but North Africa as well. In this perspective, setting our sights on renewable energy is of fundamental importance. And, in our own small way, we have been doing this by diversifying energy sources and investing in hydroelectric production. It’s not our fault that, unfortunately, global warming has not helped us and drained the basins.
Until a few years ago, many people were calling for inflation. Now it has arrived, with unexpected speed and staying power. However, the recipes for dealing with it seem to be different on both sides of the Atlantic Ocean. Who is right: the American Fed or the ECB managed by Lagarde?
Inflation – if not actual stagflation: high inflation and lack of GDP growth – is certainly more topical in the United States, where its rise began much earlier than in the Eurozone. As a result, the Fed has already announced the imminent start of the normalization of assets on its balance sheet and has already started raising interest rates. In Europe, on the other hand, Lagarde is opting for a softer approach: a less restrictive monetary policy is needed to deal with the consequences of the war. The substantial difference between the U.S. and Europe is that the former is self-sufficient in energy, and therefore inflation could return sooner; and the Fed could soon review its monetary policy in this case, recalibrating it in an expansive manner.
