Aurelia Butler

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Tired of depressing news of economic recession and sluggish growth? Italy to the rescue. Bel paese has emerged as the stronger performer among large European economies over the past four years. This week Italy’s statistics office revised up its backward output figures to show that in the final three months of 2023, the economy was 4.2 per cent from the level in Q4 2019, before the pandemic. This is the best recovery of any major European economy and it is about double the pace registered in France and the UK over the same period. It is also much stronger than the no-growth registered in Germany.  You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.Before you double-check that we’re talking about Italy — the long-term stagnant economy — it’s worth keeping in mind that the unusually strong performance is largely explained by the “super bonus”, the generous tax relief on home improvements introduced in 2020. It’s difficult to grasp the enormousness of this measure. Italy’s investment, which includes housing, is up 30 per cent compared with Q4 2019, before the pandemic, the fastest rate ever recorded in the country since comparable data began in 2000. This compares with investment growth of only 4 per cent for France and 7 per cent for the UK over the same period, while Germany registered a 5 per cent investment contraction. You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.Italy’s better economic performance than some of its peers is “due to the strong tax incentives in construction,” confirmed Nicola Nobile, economist at Oxford Economics. Tax incentives “helped construction activity much more than in other countries, for instance, the 0.2 per cent quarter-on-quarter GDP growth posted in Q4 last year [was] entirely driven by construction,” said Nobile. Construction output in December 2023 was down 13 per cent in Spain, dropped 7 per cent in Germany and was flat in France, according to Eurostat data. In Italy it was up 40 per cent from 4 years before. But the boom could go into reverse as the measure is withdrawn, economists warn. The incentives initially covered up to 110 per cent of expenses, but the discount was lowered to 90 per cent in 2023 and 70 per cent from January this year. It is also now more difficult to attain than in previous years and the measure is slated to end in 2025.“A correction in investment is imminent,” said Melanie Debono, economist at the consultancy Pantheon Macroeconomics. She added applications for the “super bonus” soared more than expected at the end of 2023 as builders and households rushed to take advantage of the measure before the changes in January, and have since been declining. Separate data published last week showed that the measure also cost a fortune. Official data showed that the budget deficit in 2023 was 7.2 per cent of GDP, well above the government’s 5.3 per cent. This is more than double the eurozone average, a worrying figure for a country with a debt equivalent to about 140 per cent of GDP and that pays over €80bn in interest payments every year. “The impact of this measure on the fiscal deficit was very large for the last few years, as the cost continued to overshoot the official estimate,” said Nobile. But probably the more disappointing part is that the latest strong performance barely lifted the country from its long-term economic stagnation. You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.Compared with 2000, Italy’s economy is only 9 per cent larger, a small fraction of the 30 per cent to 40 per cent growth seen in other major economies. While tackling energy efficiency and housing decorum, the measure did little to tackle the country’s long-term challenges, such as poor productivity growth and the oldest population in Europe. Well, that’s not much for uplifting news after all. More

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Despite signs of cooling price gains following a sudden uptick two years ago, officials at the central bank overseeing the 20-country eurozone currency bloc have been recently unwilling to roll out borrowing cost reductions early this year.Instead, analysts are focusing on the ECB’s communication. Economists at ING said in a note that they are curious to see if President Christine Lagarde will calibrate her messaging to pave the way for a potential cut in June this year. Lagarde is due to hold a press conference at 1345 GMT.This is a developing story. Please check back later for updates. More

Shares of the company, which has struck a $24.6 billion deal to buy smaller rival Albertsons (NYSE:ACI), rose about 4% in premarket trading. Consumers are cooking more at home, instead of eating out, as grocery prices ease at a faster pace than menu prices at restaurants, propping sales of retailers such as Kroger (NYSE:KR) and Walmart (NYSE:WMT). Data from the U.S, Department of Agriculture showed food-at-home prices were only 1.2% higher in January, compared with a year earlier, whereas food-away-from-home prices were 5.1% higher than January 2023. The supermarket chain said it expected fiscal 2024 identical sales, excluding fuel, to increase 0.25% to 1.75%, compared with analysts’ average estimate for a 0.7% increase, according to LSEG data. The company projected adjusted earnings of $4.30 to $4.50 per share for fiscal 2024, compared with analysts’ estimate of $4.34 per share. More

ISTANBUL (Reuters) – Turkey is expected to take more policy steps to cool stubbornly high inflation after this month’s local elections, setting the stage for more pain for Turks already struggling after years of soaring prices, according to data and some economists.Households and investors appear sceptical over whether the central bank’s dramatic U-turn towards massive interest rate hikes – to 45% now from 8.5% last June – is sufficient on its own to rein in inflation that topped 67% last month.Finance Minister Mehmet Simsek and other authorities have urged patience, saying the more orthodox set of policies adopted last year would bring price relief later this year. Simsek said on Monday that he does not plan big tax changes, while the central bank has said it would hike rates more if inflation drifts above forecasts in the months ahead. Yet the higher-than-expected February inflation data, combined with persistently high domestic demand has raised expectations that more fiscal and monetary steps are coming – though not until after March 31 elections for which President Tayyip Erdogan is campaigning hard for his ruling AK Party. “Once the local election cycle is over the monetary and fiscal policies will likely tighten again after a brief pause,” said Selva Demiralp, professor at Istanbul’s Koc University and a former Federal Reserve economist. “By mid-year, we will taste the full bitterness of the policy medicine,” she said. “Inflation will rise until at least then, while hikes to the minimum wage and other fiscal buffers will dissipate.” Among efforts to ease the dual sting of high inflation and borrowing costs, Ankara has hiked the minimum wage by 49% this year.Demiralp and some other prominent economists say that if it wants to cut inflation to 36% by year-end as the central bank forecasts, such fiscal measures need to halt. Wall Street bank JPMorgan expects a 500 basis-point rate hike in April. DISTRUSTConsumers, faced with an 8.25% rise in food and non-alcoholic drink prices from January to February alone, see little relief on the horizon. “My husband and I do not think inflation will decrease rapidly,” said Gulsah, 34, a maths teacher at an Istanbul high school who declined to give a surname. “We try to keep savings in foreign currencies and gold to protect ourselves” because, she said, “we still can’t trust” that the lira will remain stable after the elections. Worried about inflation, Gulsah said she bought a pressure cooker that her family didn’t really need in November just because she thought its price would double or triple this year.Some 92% of households said it was a good time to buy appliances, electronics and other durable goods based on a Koc University Household Inflation Expectations survey of more than 2,500 respondents last month with Konda research firm. The data, not yet published, reflects deep pessimism that inflation will fall after a years-long cost-of-living crisis, brought on by Erdogan’s longstanding opposition to high rates and his ousting of five central bank governors in as many years.The annual growth rate of credit card spending rose to more than 153% while the total loan growth rate was 52% in the 12 months to January, according to banking watchdog data. Bankers have said the government should take measures to curb credit card spending to cool domestic demand. ‘INVISIBLE HAND’After his re-election last May, Erdogan appointed a new cabinet and central bank leadership to turn things around amid depleted foreign reserves and soaring inflation expectations.Foreign investors began buying Turkish bonds late last year, seeking to cash in on the rate hikes. But over the last week the cheer has faded, testing Erdogan’s will to address inflation while his AK Party seeks to reclaim Istanbul and other big cities from the opposition in the approaching elections.The lira tumbled to new lows beyond 31.8 to the dollar this week, 10-year bond yields returned to November levels and Turkey’s credit default swaps, a measure of risk, jumped to 330 basis points, the highest in a month. Gizem Oztok Altinsac, chief economist for Turkey’s largest business group TUSIAD, said annual inflation will fall after May due to base effects but not as much as the central bank predicts due to strong domestic demand.She told an Istanbul summit two weeks ago that rates were not hiked high enough when the tightening began last summer and that despite the election tight fiscal policy needs to buffet monetary policy in order to tackle inflation. “Steps should be taken on time,” Altinsac said. Hakan Kara, the central bank’s former chief economist and a professor at Bilkent University, told the summit: “An invisible hand ensures a tightness level just below optimum whenever the central bank is about to reach optimum policy tightness.”A Reuters poll sees annual inflation falling to 42.7% by year-end, higher than the central bank forecast. Simsek, speaking on local broadcaster BloombergHT this week, said that inflation would remain high in the coming months due to base effects and the delayed impact of rate hikes, but would fall in the next 12 months. More