The Bank of Italy report on the Lombardy economy 2023 presented
The introduction of the works was entrusted to Giorgio Gobbi (director of the Milan branch of the Bank of Italy): “We can look to the future in a normal situation, which is however very different from that of 2019: there are two ongoing wars which, among other things, significantly slow down economic development” and we perceive a scenario where climate change is a burden. Lombardy is in fact the main Italian economic engine, as emerges from the Report.
The report was then presented by Paola Rossi (Bank of Italy – Milan Branch) e Massimiliano Rigon (Bank of Italy – Milan branch). In summary, the two officials explained, the phase of strong expansion of the economy following the pandemic crisis ended in 2023 and, according to Bank of Italy estimates, Lombardy’s product grew by 1.2 percent, more than the national average (0.9 percent). Inflation fell to 1.0 percent last March, from 11.0 percent at the end of 2022, mainly due to falling energy costs. The excellent position of Lombardy, within the major European industrial regions, in high tech manufacturing technology was also illustrated, which, underlined Paola Rossi, certainly requires targeted investments.
In 2023, industrial production stagnated (0.2 percent) and company turnover decreased. Investments valued at constant prices instead increased by 4.4 percent compared to 2022. The difficulties in supplying raw materials and intermediate products that had characterized the previous two years have reduced.
In the construction sector, activity continued to expand, still supported by incentives for energy efficiency interventions and by works financed by the Pnrr. In 2023, however, the real estate market suffered a setback, with a sharp decrease in sales (-8.9 percent compared to the previous year in the residential segment) and a slowdown in prices in the residential segment (2.7 percent , compared to 5.4 in 2022). In the non-financial private services sectors, turnover continued to grow, especially in the accommodation and catering activities which benefited from the good performance of tourism, especially from abroad.
Businesses faced the weakening of the economic situation and the rise in rates. Profits remained high: around 85 percent of industrial and service companies and 90 percent of construction companies closed the financial year with a profit. Companies have reduced their debt to banks (-3.6 percent) and have disinvested part of the liquid assets accumulated during the pandemic. Large groups continued to raise funds through debt securities. The number of employed people continued to grow (1.7 percent) and wages increased modestly compared to the increase in prices, despite the fact that companies report the intensification of difficulties in finding new personnel, in particular workers with high technological skills.
As a logical consequence of these data, the Report indicates that family income decreased in real terms by 0.7 percent, due to the increase in prices. According to Bank of Italy estimates, as many as 7.5 percent of Lombardy families were below the absolute poverty threshold, a share only slightly lower than the national average. And even if consumption, although slowing, continued to grow (1.4 percent), spending was financed by drawing on bank deposits that grew significantly during the pandemic and by resorting to consumer credit. And for families, signs have emerged of increased difficulties in meeting mortgage payment deadlines.
Investments by local authorities have increased, supported by the progressive implementation of interventions financed by the Pnrr. At the end of 2023, over 13 billion euros had been allocated to public implementers for projects to be carried out in Lombardy; the estimated amount of the tenders announced was around 6 billion euros, three quarters of which had already been awarded.
In the first months of 2024, however, the economic trend remained weak and the forecasts available at a regional level indicate a new slowdown in the current year, and even if the added value of Lombardy represents around 23 percent of the national one, the aging of the population represents a factor destined to grow at a worrying rate.
The analysis interventions then followed, starting from that of Donatella Sciuto (Rector of the Polytechnic of Milan): “The idea that the University is a social lift has been lost: the constitutional principle of the right to education is not covered by national and regional finances, and we have invested 9 million to guarantee this right.” Innovative capacity depends on students who are trained in advanced technologies, a qualified workforce is lacking despite companies investing. 15% of Italian graduates go abroad and 50% of foreign students trained at the Polytechnic go abroad but to Europe, not to their country, Sciuto said. Today only one student in 5 chooses a technical-scientific subject at University and in Lombardy even fewer, 11.3 per thousand among young people up to 29 years of age. Lombardy has a large economy but travels with the handbrake on. And in Italy there is a lack of 3.5 million employees with basic digital skills, compared to AI development forecasts.
Francesco Billari (Rector of the Luigi Bocconi Commercial University) underlined that it is good to have the ambition to raise the bar: “The comparison with the regional cluster is interesting but that is not where we have the most challenging bars, we need to go and see which is the right one. ambition of Lombardy, which should compete with the strongest regions in Europe”. Lombardy’s economy is essentially built by people and therefore competitiveness depends on human capital. In the short term, growth has been achieved with foreign workers (now they are 13 percent), with a slowdown in the last six years.
For young people, the housing problem is becoming central: owned homes occupied by elderly families do not represent the most competitive model for attracting workers and young people. Wealth is shifted towards older families and among young families those made up of foreigners predominate. But what will happen with successions? Also worrying is the fact that the figure for families in poverty does not differ from the national average.
Furthermore, if a Region that has few young people also becomes a region with few graduates, it is necessary to find a different approach with schools, first and foremost with the University. 13% of young migrants, compared to the national average of 9%, face mistrust regarding their ability to access university.
The work was concluded Luigi Federico Signorini (General Director of the Bank of Italy): “After twenty years of growth, the Italian economy has shown a good ability to react to the pandemic and the war in Ukraine. The financial structure of companies strengthened and there was a V-shaped recovery, denying that the Italian production structure did not have the possibility of recovering”.
Looking ahead, however, Signorini said, unavoidable strategic risks remain and the recovery must be consolidated. Economic activity has decreased in Germany and stopped elsewhere, the post-pandemic recovery has run out. Growth in the next few years is around 1% but the unknowns of the international economy remain. A fundamental issue is demographic growth: a smaller population does not mean less well-being, but there are two issues: the sustainability of the public debt and the pension system, which will burden the shoulders of young people, the problem is therefore the dimension of the two generations. The second problem is the share of employed people: given a decline, Italian GDP is destined to contract by 13% and per capita by 9%. But there are other positive factors: the pension system ensures that we keep pace with the increase in life expectancy. The employment rate is growing but remains 8% lower than the euro area, and for women it rises to 13 percent. The increase in foreign workers requires integration into the school system.
The second theme is productivity: it is stagnating and our lower growth depends on this: investments in technology and human capital are not up to the needs. The greatest risk for the economy is not participating in the development of technology: if some profession disappears it will be necessary to relocate the workforce and protect it, the great technological revolutions of the past make jobs disappear but create others, it is not just a question of demographic balance: “We must not slow down innovation, which is key to everyone’s growth and well-being,” Signorini recalled.
Italy is notoriously late in the diffusion of digital skills and there are two notable differences with other countries: low participation of women in the labor market and low education, and public intervention is essential on this.
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