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Intesa Sanpaolo: Italy – The Government approved Update to the NADEF

Italy – The Government approved the much awaited Update to the Economic and Financial Document (NADEF)..

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Weekly Economic Monitor – 1 October 2021

Intesa Sanpaolo – Research Department


which on the one hand confirmed the net improvement of the public finance framework (2021 deficit revised to 9.4% from 11.8%, debt now seen to decrease this year to 153.5%), on the other hand it highlights that, also thanks to the fiscal spaces created by the higher than expected growth, the Government intends to implement an expansionary manoeuvre over the three-year period 2022-24 which is worth 1.2% of GDP for next year (about 22 billion).

In our opinion, there are further margins for improvement in the public finances this year (we do not exclude that the deficit may also fall below 9%), while Government assumptions regarding GDP growth in 2022-24 seem moderately optimistic.

US – Here we go again, on the verge of crashing against the debt ceiling. If Congress fails to take action by 18 October by raising the debt ceiling or suspending it, the Treasury may no longer be able to honour its financial commitments. The Republicans have set responsibility for a potential default squarely on the shoulders of the Democrats, that have little choice as to how to act. Action is likely to be taken on the debt ceiling in combination with the Build Back Better Act package, to be approved using the reconciliation procedure, and Democrat votes alone. The alternatives would require some cooperation from the Republicans, unlikely as things stand: either a bipartisan Senate vote or the decision to renounce filibustering, both with close to no chance to occur. In the (for now very unlikely) event that the debt ceiling became binding, the economic and financial costs would be massive.

The week’s market movers

Rather quiet week in the euro area in terms of macro data. Industrial output in Germany and France should stay little changed in August, confirming the weakness of the manufacturing sector, held back by persistent production chain bottlenecks. Also in August, German industrial orders are expected to decrease slightly. In the same month, Eurozone retail sales should rebound, after decreasing in July. Lastly, the final readings of September PMI survey indices should confirm that the recovery has passed its peak.

In the United States , only a few data releases are on the weekly agenda, but the September Employment Report is sure to attract the market’s attention. Job gains are expected to prove only slightly more solid compared to the relatively disappointing August reading, but should not hinder the start of the Fed’s tapering, expected in November. The unemployment rate should drop further, to 5.1%, whereas hourly wages are estimated to rise strongly again, as a result of excess demand on the labour market. The services ISM for September should correct, confirming a moderate slowdown of growth, still in positive territory, due to the spreading of the Delta variant. The August trade balance deficit is forecast to widen reflecting the restrictive effects of supply-side bottlenecks on global trade trends.


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Source: BONDWorld