Italy attracts foreign investors but loses primary incomes

Assessing Italy’s Economic Outlook

It is well known that the market looks at the economic and political stability of a country; ungovernability is often synonymous with problems and uncertainty.
In a globalized world, capital flows move prices and therefore the value of companies and stock indices, bonds, commodities, currencies…
basically everything that can be traded, through the intersection of liquidity supply and demand.

Market Evaluation of Italy

According to data from March made available by the Bank of Italy, there is a €100 billion increase in foreign investments in Italian government securities and stocks/bonds of companies over the last twelve months.
The value of 100 has corresponded in the past to periods of financial and economic growth for our country, with specific levels even for individual assets: €75 billion for government bonds and €25 billion for Italian companies’ stocks and bonds.

It is worth noting that the outflow of foreign investors from public administration debt was -€100 billion in 2022 and even -€150 billion during the European debt crisis of 2012.
However, it is important to highlight that the newly issued public debt has always had greater demand than supply, even in 2012 (Italian debt is always attractive in the primary market, more so than American debt if we consider the historical demand/supply ratio, while in the secondary market, it can easily collapse).
The share of foreign investments in Italian companies in March was €25 billion, far from the mentioned threshold of €50 billion.
We will see if the updated data will bring the value closer to this ambitious target already achieved in 2006 and 2014.

Challenges in the Economic Landscape

However, not everything that glitters is gold: primary incomes, after reaching a peak of €27 billion in 2021, turned negative in 2023, which had not happened since 2016.
But what are they? They “represent the compensation due to institutional units for their contribution to the production process or for the supply of financial assets or for the leasing of natural resources.
They include income from labor, income from capital, and other primary incomes.”

Primary incomes are a “minor” item in the current account but are an indirect indicator of the real economy’s health of the country, of the wealth generated abroad through work and other activities, while foreign investments are more of an important asset item.
In conclusion, oversimplifying, we are solid but we are getting poorer.

For further information on the control of the Italian public debt, please read this article.

Author: Hermes A.I.

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