Treviso, November 19, 2024.
President Mario Pozza’s comment
The economic picture continues to be characterized by a persistent weakness in international demand, aggravated by the automotive crisis and the more general German recession – is the first comment of the President of the Chamber of Commerce of Treviso-Belluno, Mario Pozza. The German market is our first reference market: it absorbs 13.8 percent of regional exports, which are worth 11.3 billion euros (2.3 billion in Treviso, almost half a billion in Belluno).
It should be pointed out right away that, fortunately for us, not all sectors are affected by the deterioration: agribusiness continues to grow, wood-furniture seems to be feeling signs of restarting demand, the electrical equipment industry is also defending itself. Due to offsets between these different sectoral dynamics, overall industrial production limits the decline to -1.9 percent in the quarter under review, on a trend basis. But the gap between the sectors that are holding up, and those that are doing poorly, such as the Fashion System and the entire supply chain that revolves around the automotive industry, opens up sharply, which causes us much concern.
The Fashion System – the president explains – is the sector that experiences the heaviest drop in production on a trend basis in the quarter under review (-7.1 percent): it is suffering from household spending difficulties, caused by higher prices, but also a more general recomposition of consumption toward services (travel, entertainment, health) instead of toward the purchase of nondurable goods.
As for the automotive sector – Pozza continued -, the drop in production is around -4.0%, but now we need to understand the contours of the crisis, how deep and extensive the impact may be on all those companies of ours that, in Veneto but also here in the province of Treviso, are part of the allied industries. On the manufacture of automotive parts and accessories, we also manage to quantify some numbers: there are 528 factories in Veneto (and 116 in Treviso) operating in the sector, with a total of about 7,000 employees (1,800 in Treviso). These companies generate a regional export of 1.5 billion euros, of which nearly 300 million goes to the German market; with another 270 million in semi-finished products destined for the larger quadrant of Central and Eastern Europe (including Austria), where many first-tier assemblers for the German automotive industry operate, as is well known. But I would like to point out,” Pozza again, ”that these numbers are at fault, because they do not take into account the many companies in metalworking, plastics, electrical or electronic components that are officially codified within these sectors, but with business lines for the automotive sector as well. Suffice it to mention the case of the Quero foundry, which went into crisis because it had focused heavily on elements for electric motors, and could leave half of its workers at home.
I have long continued to say – Pozza speaks -, that it was too hasty and ideological for the EU to ban thermal engines, to focus exclusively on electric mobility without understanding that markets and technologies were not mature.
I would add: there is a more general problem with the competitiveness of European industry. And the ECB’s over-cautiousness in lowering interest rates also contributes to it. Months ago, our Governor of the Bank of Italy, Fabio Panetta, had issued a warning to the ECB itself, warned that the speed of the rate drop should be well managed so as not to depress demand too much. That time to figure out how not to depress demand now seems to have passed,” Pozza argues, ”looking also at the numbers in our survey: even an excellence like our machinery industry is feeling the effects of this climate of uncertainty, of the cost of money that induces postponement of investments, as well as of a 5.0 Transition Plan announced in words by the government but that is slow to be grounded.
Then, Pozza concludes, the time for decisions has come. Forecasts gathered from our entrepreneurs still see too much uncertainty about demand. The labor market has held so far, but how much longer will it be able to do so? Negative employment balances emerge in the Fashion System and in the automotive sector, as certified by Veneto Lavoro.
There are choices to be made, especially in the European Union, President Pozza says, if we still believe in the project of European integration in substance and not just in fine words. A new European policy must be written to support manufacturing. One that will certainly go through digital transformation and ecological transition, but with shrewd choices and timing, based on the real absorption capacities of the markets, aware moreover of the obvious asymmetries in terms of emissions between the major areas of the world: China pollutes 4.5 times our continent. And there is nothing worse than letting businesses and households think that the bet for the environment is only a matter “for the rich.”
If we then want to foster business growth on these issues, the president continues, we need to change the rules of ’state aid.’ If we believe in certain directions, we must make sure that we do not walk with the brakes on. A right public leverage on investments, not centered for fear of altering “competition,” can foster a faster competitive leap of our companies, whose comparison is with the rest of the world, not only within Europe. Research that we are conducting in collaboration with Ca’ Foscari University of Venice and that we will use to strengthen our PID offices tells us that the more we foster the digitization and technological complexity of businesses, the more we enable businesses to compete in international markets, to also have sophisticated decision-making tools that are functional for diversification.
But this rethinking of the rules of competition in favor of growth must also be extended by breaking down the constraints for the formation of large industrial groups, so that they can compete on equal terms with non-European multinationals, can have sufficient critical financial mass to do research and investment on the major technological and energy issues, on which we are only lagging behind the rest of the world. I say this as an entrepreneur who comes from the artisan world: the presence of industrial champions within the European Union serves us and can have important spin-offs in the territories, including for small businesses. Jewels of our precision mechanics present in Veneto are also participating in the Cern projects in Geneva. Pieces of the space economy pass through the Treviso area. But we need to multiply these engines of excellence.
So it is time for Europe, with the new Commission, to wake up and give itself a new vision for development. The Draghi report is a good ticket to the future. But we need to get on the road. A change of pace is needed. Even in Italy, where speaking of missing or wrong visions for development, we need to shake off the heavy, very heavy financial burden generated by the Superbonus, which will limit budgetary policies for years.
The international and domestic picture
International demand for industrial goods continues to remain weak, especially in Europe, despite the return of tensions in global supply chains and falling commodity prices. Factors that have not been enough to offset the effects of restrictive monetary policies (with negative impacts on investment and consumer durables), the tendency of households to replenish savings eroded during the most acute phase of price increases, even a certain structural change in consumption (tending to favor services rather than the purchase of goods, with a particular penalty for the fashion system).
According to analysts at Ref. Conjuncture (No. 18, 2024), the ECB’s over-cautiousness in the speed of interest rate cuts is also structurally affecting the competitiveness of European industry. Not only because it has caused the postponement of business investment (to the benefit of non-European competitors), but also because it has resulted in a strengthening of the euro exchange rate toward Asian economies, further increasing the difficulties of those sectors most exposed to competitive pressure with China.
Against this backdrop is the loss of attractiveness of German cars. Which, in combination with the hasty European policy of banning the endothermic engine and with price lists that have risen by an average of +38% in the last 4 years, risks producing the infamous “perfect storm” on the entire European automotive-related industrial supply chain, with significant impacts in Italy and the Veneto region as well. The recent ISTAT note, published on November 8, shows for the transportation equipment sector a contraction in industrial production of -9.2% in the first nine months of 2024 compared to the same period of the previous year, compared to an average decline in manufacturing of -3.4% (data adjusted for calendar effects). But ANFIA (Associazione Nazionale Filiera Industria Automobilistica) estimates that focus only on automotive and its allied industries go so far as to foreshadow contractions close to -20 percent over the same period considered. In fact, several Italian producers of intermediate goods are suppliers to the German automotive industry.
In Italy, a further critical element is added: the “sudden change of direction in budgetary policies” (again Ref. Conjuntura, also in the passage cited below). Italy is not the only European partner to have adopted more restrictive fiscal policies. However, “the targets indicated by the government indicate that Italy should bring the public deficit below 3 percent of GDP as early as 2025, a correction that would be resounding, remembering that between 2020 and 2023 Italy’s public deficit stood at levels around 8 percent of GDP.”
Part of this expected improvement in the accounts is linked to the exhaustion of the various tax bonuses, which have “drugged” the construction market and generated massive public debt (according to estimates by the Observatory on Public Finance of the Chamber of Deputies, the greatest impact of the Superbonus on debt will manifest itself between 2024 and 2026 to the tune of 40 billion a year). It will now be a question of what settling down the construction industry and its supply chain, which in these post-pandemic years have played an important role in supporting GDP growth (also due to income “surfacing” phenomena), will go towards. The most negative effects could be mitigated by public works, the restart of the housing market (if interest rates continue their descent), a principle of recovery of household purchasing power (also supported by the structural reduction of the tax wedge). But — it is again the analysts at Ref.Conjuntura who point out — “putting together these different objectives — [improving public finance balances, high investment in public works, reduction of the tax wedge, ed.] — will not be a simple matter.”
The machinery industry is also at the bottom of the pile: penalized by the general postponement of investments, especially in the EU (due to the cost of money and market uncertainty) and by delays (in Italy) in the launch of incentives linked to the “Transition 5.0” measure. On a trend basis, always looking at the trend of industrial production (source ISTAT) in the first nine months of 2024 compared to the same period of the previous year, the only industrial sectors with a positive sign are food, chemicals, and electrical equipment.
