Bank of Italy, Panetta: "With war there are risks for growth. In Italy, focusing on young people and AI"

In an increasingly fragmented world, threatened by wars and energy shocks, theItalian economy loses momentum and risks, in the worst case scenario, the stagnation or contraction. The knot remains there productivitya challenge “that can no longer be postponed”, and it is crucial to overcome decades-old “weaknesses”, to focus onartificial intelligence but above all on the skills of young people, so that they can “contribute to the progress of the country”.

The governor of Bank of Italy, Fabio Panettain Final thoughts on the occasion of Annual reportcharts the course, in a context of “high” uncertainty in which inflationary tensions require “recalibrating” the orientation of the monetary policy of the Bce to avoid a price-wage spiral.

Geopolitical shocks and blockade of the Strait of Hormuz

The conflict in the Persian Gulf, Panetta began, has “dramatically changed” the global situation and the global growth “it is exposed to risks that are more numerous, more interconnected and more difficult to manage than in the past”. “The block of Strait of Hormuzthrough which one fifth of the world’s oil and liquefied gas supplies usually pass – he observed – has caused supply shortages and strong price increases energy raw materials“.

“The general picture remains fragile”, warned the number one again Bank of Italysince “with huge public debts and growing vulnerabilities in non-banking intermediation, even limited shocks can generate cascading effects.”

In Italy, since 2019 the economy has shown “significant resilience” but now “the momentum has weakened”, and “the deterioration of the geopolitical framework, the tightening of US trade policies and the difficulties of theGerman economythe main market for our exports”.

The conflict, Panetta further explained, “has weakened already fragile prospects. According to projections, economic activity will remain weak in the coming months: in the most unfavorable scenarios, it could stagnate or contract”.

The productivity challenge: the lever of Artificial Intelligence

Looking ahead, he highlighted, “the crux of competitiveness risks becoming central again” in the face of Chinese competition which “increases pressure even in the technologically advanced manufacturing sectors”. “Without a decisive increase in productivity – the governor warned – the Italian economy could remain anchored to structurally modest growth rates”. According to Panetta, “demography makes this challenge impossible to postpone”. Therefore it is necessary to address, he recommended, “the weaknesses which have been holding back the Italian economy for decades: the lack of innovation, the low levels of human capitalenergy dependence”.

L’artificial intelligenceexplained Panetta, “can become a decisive lever” to relaunch productivity, with a contribution of “0.2 percentage points per year in a scenario of slow adoption, and of over 1 point in the event of rapid and pervasive diffusion”. However, an “extensive” adoption of AI encounters “significant obstacles, especially among smaller companies”, and to overcome them “public intervention can be decisive, especially in the initial phases”.

The technological revolution “must be governed”, he further warned, and success will depend on “the ability to offer opportunities and a future to young people. A country that innovates must be able to enhance skills, reward merit, retain and attract talent, allow everyone to contribute according to their abilities. It is a question of efficiency and justice together”.

Public debt reduction, transition and nuclear power

Italy, the governor was keen to underline, “has significant strengths” but “we need a strategy capable of mobilizing these resources: not generic subsidies, but targeted policies”. In fact, our country can count on “cutting-edge scientific knowledge, human resources to be exploited, a production system with recognized excellence, a solid financial position of banks, businesses and families“.

It is “a precious asset”, he remarked, and “for it to become a real advantage, it must be oriented towards growth, income and prosperity in the years to come”. The path indicated by Panetta is therefore to “decisively take a path that allows us to permanently reduce the weight of public debt” thus freeing up “resources for social and development spending”.

And in the face of inflationary risks, the “targeted and temporary support measures” for families and businesses, “to mitigate the impact of price increases”, must be accompanied by “structural interventions aimed at addressing the energy vulnerability“. “Just accelerating the energy transition we will be able to permanently reduce dependence on foreign countries and prevent new shocks from hitting incomes, competitiveness and growth hard again”, he observed. The number one of Bank of Italy also opened up to thenuclear energy: “new technologies under development deserve careful evaluation.”

As for the banking systemaccording to the governor it remains “solid”, and the good level of capitalization opens up “space for new aggregationsnational and cross-border”.