Italy

«The Economist», 13 febbraio 1937 pp. 12-13

The only available figures of foreign trade are those communicated by the Finance Minister to the Senate on December 22nd: there was an export surplus of 22 and 55 million lire in October and December, respectively. Clearing offices are at present the most important instrument for settling international indebtedness. There are a number of sums due to be paid in Italy which are held up because the National Institute for Foreign Exports has not received the money to pay Italian exporters:

PRODUCTION. – Wheat production was smaller than in 1935, and consequently imports will rise to 1.5 or 2 million tons in the agricultural year 1936-37. The corn harvest was larger than the 2.5 million tons of 1935. The yield of cocoons increased by about 70 per cent, over 1935, when it was 17,400 tons. The yield of rice in 1936 was 681,795 tons, against an average of 666,000 tons for 1933-35. Olive oil production was lower than the average for 1933-35; prices are rising, and it is difficult to buy at the official price of 6,510 lire per ton for the best quality. Production of wine was below the average for the three years 1933-1935, but, because stocks are heavy, prices are still very low. Legislation is announced to restrict the increase of vineyards. The production of sugar for 1936-37 is estimated at 300,000 tons against an average production of 295,533 tons for the years 1933-35.

Building is slackening owing to the cessation of the tax exemption for new buildings. Engineering, iron and steel, and textiles, are active. Rayon production was 40,242 tons in 1933, 51,053 in 1934 , 72,356 in 1935, and is estimated at 90,000 tons in 1936.

New industrial projects are not increasing in number; it seems more easy for old firms to obtain permission to enlarge their plants, than it is for new undertakings.

PRICES. – Prices have risen continuously since 1934. The rise since September has been slow, although the lira was devalued at the beginning of October.

The spread between the prices of raw materials, semi-finished and finished goods is generally diminishing. Industrialists had accumulated large stocks of raw materials, and the effect of the devaluation or alignment of the lira was therefore not acutely felt. But the stocks now need replenishing, and the rise in import prices will probably lead to a further rise in domestic prices.

THE COST OF LIVING. – The rise in retail prices was less marked than in wholesale.

Between August, 1935, and December, 1936, increases in wages of from 8 to 10 per cent, were decided upon by agreement between employers and employees. There are no unemployment statistics, but since employment increased because of the movement of men to East Africa and the great activity of armament firms, it is very probable that earnings per family increased more than wages.

PUBLIC FINANCE, MONEY MARKET. – The State Budget was the controlling factor in the Money Market. There were deficits of 6,377 million lire in 1933-34, 2,030 millions in 1934-35, and 1,550 millions in 1935-36; as this last figure does not include the cost of the East African campaign, we can only guess at the call of the Treasury on the Money Market. Part of the total deficit (ordinary deficit plus East African expenditure) was met with means which did not press on the existing internal liquid funds: 1) the proceeds of the sale in foreign places of foreign securities and of Italian securities issued in foreign countries; 2) the decrease of the gold reserve of the Bank of Italy. Estimates of securities compulsorily sold to the Treasury vary between 4,000 and 6,000 million lire. How much of this amount could be and was sold in foreign places is not known; but the sum thus made available for foreign payments must have been substantial. According to the official report, the gold held in cash by the Bank fell from 4,704 million lire on August 31, 1935, to 3,027.3 on December 31, 1935. How much it has declined during 1936 is not known; but the amount held at the end of the year must have been substantial because the 41 per cent, devaluation of the lira gave (by the revaluation of the gold reserve) a not inconsiderable bonus to the Bank and the Treasury. The note circulation was increased. It is possible that these means went far to meet the major part of the extraordinary needs of the Treasury; the remaining part was easily met by the conversion of the 3.50 per cent, redeemable into 5 per cent.

The Money Market responded easily to these calls; the Bank of Italy was able to reduce the official rate of discount on May 18th from 5 to 4 1/2 per cent.; and the private rate was frequently even lower than the official one. The redeemable 3.50 per cent, began the year at 65.9 and closed at 74.5; the 3.50 per cent. Rentes rose from 68.6 to 75.5. Industrial securities progressed even more: La Centrale (electric) from 671 to 818; Meridionals (holding company, mainly electric), from 615 to 798.50; Fiat (motor car and other engineering), from 345 to 475.75; Savigliano (engineering), from 720 to 1,130; Snia Viscosa (rayon), from 348 to 463; Linificio e Canapificio Nazionale (linen and hemp), from 350 to 464; Olcese (cotton), from 228 to 369; Edison (electric), from 240 to 316; Gas, Turin, from 12.87 to 14.57; Eridania (sugar), from 411 to 495; Pirelli Italiana (rubber), from 1,086 to 1,323; Risanamento Napoli (real estate), from 905 to 952. The rise was in part due to the devaluation of the lira on October 5th by about 41 per cent.; the dollar exchange fell from 11.22 to 19 lire. But there is also a real basis of abundant money. Whether the abundance is due to effective savings, or to the fact that industrialists have in 1936 converted their stocks of raw material into liquid money, awaiting the best moment or the licence to re-convert into stocks, is a thorny point about which opinions differ.