Italy Economy and Finance from 1954 to 1959 2

According to, the Suez crisis caused in the second half of 1956 and in the first months of 1957 an upward movement of prices, which affected not only the goods forming the object of the transit trade through the canal, but spread to numerous other products, due to the increase in freight rates and hoardings. The import price index registered a 7% increase between June 1956 and January 1957 and the domestic wholesale price index increased by 3%, with a maximum of 17% in the fuel sector.. Moreover, starting from February 1957, with the improvement of the international situation, wholesale prices registered a gradual decline. In mid-1958 the disturbances caused by the crisis could be said to have been exhausted: the the index had returned to the level of two years ahead and the changes in the price structure that had occurred in the meantime were practically eliminated. Consumer prices and the cost of living instead showed an almost continuous upward trend, which lasted until June 1958, further increasing the already large gap with wholesale prices.

Favored by the increase in both domestic and foreign demand and by the rise in prices, industrial production recorded an increase of 10% in the second half of 1956 and in the first 9 months of 1957. The first to move was the textile sector, in which the changed economic situation made the need to replenish stocks more urgent, reduced to a minimum after the 1955 crisis. It was followed, towards the end of 1956, by the steel and mechanical and of means of transport, while the industries producing auxiliary materials and those of cement and glass were initially forced to slow down due to the scarce availability of petroleum products.

In the foreign trade sector, the worsening of the terms of trade significantly increased the deficit of the merchant balance in the early months of 1957 and, in the absence of compensatory changes in the other items of the balance of payments, led to a net outflow of currency. In the second half of the year, however, the decline in the prices of raw materials on international markets, the fall in freight rates and the slight increase in export prices improved the terms of trade, while exports, especially of metallurgical and mechanical products, marked a notable increase. Consequently, the year ended with a negative trade balance only slightly higher than that of 1956. The income for tourism and the remittances of workers to the foreign countries and emigrants recorded a significant increase, so that the current account balance was negative for only 88 million dollars. Extraordinary items and capital movements made up the difference and resulted in an increase of $ 286 million in foreign holdings.

During the Suez crisis, the economy’s increased credit needs as a result of rising prices, the development of productive activity and increased investment in inventories was not easily satisfied by the banking system and the market. In the first half of 1957, the formation of monetary availability marked a sharp slowdown, due to the lower inflow of money on the financial market and in bank current accounts. Correspondingly, lending by banks and special institutions and investments in securities decreased. The primary liquidity reserves of credit companies fell in June to 4.7% of deposits (absolute minimum level for the entire decade) and the loan-to-deposit ratio remained around the absolute maximum of 79 for the whole semester, 9% reached at the end of 1956. In the second half of 1957 the market situation improved significantly. The inflow of foreign currency consequent to the changed direction of the balance of payments returned the necessary liquidity to the market, while the causes that had determined the previous phase of tension came to fade or cease and others began to operate in the direction of relaxation. Bank deposits resumed their upward pace, the demand for credit faded, deposits on the financial market increased. At the end of 1957 the liquidity reserves of the credit companies had returned to the level of a year earlier and the loan-to-deposit ratio had fallen to 77.6%.

In the last quarter of 1957 the economic climate changed. The excesses in investment and production that took place in some countries and in some industrial sectors became evident, the accumulated stocks were excessive, the prices on the international markets continued to decline and the economic operators proceeded to re-examine their choices. The American recession and the sterling monetary crisis in August-September had repercussions on the economies of other countries, which all showed, to a greater or lesser extent, the symptoms of a phase of stagnation. In Italy, however, the repercussions were less intense than elsewhere and of shorter duration. The industrial production index, after the high of September 1957, began to decline, reaching a low in April 1958. The downturn mainly concerned the investment goods and consumer goods sectors and in particular the steel and textile industries. But already in May the first symptoms of the recovery appeared, which was sensitive and rapid in the consumer goods sector and in the auxiliary materials sector, while the capital goods sector maintained a weak trend throughout the first half of 1959.. In the whole of 1958, the industrial production index marked an increase of just 3% over 1957. Fortunately, agricultural production recorded an increase of over 10%, so that the year could close with an increase in income 6% in monetary terms and 4% in real terms. On the side of income uses, consumption increased quantitatively by 3.8%,

In the foreign exchange sector, the policy of easing stocks of raw materials reduced the need for imports, while the level of exports remained high. At the same time, the decline in international prices and freight rates and the sustained trend in export prices led to a significant improvement in the terms of trade. As a result, the trade deficit narrowed from $ 769 to $ 381 million. The income for services and the remittances of emigrants, for their part, marked a significant development, so that for the first time in the last twenty-five years the current account balance was positive for Italy and for a very significant amount, that is for 463 million dollars. The capital movements sector also registered

An influx of currencies of this size could not fail to have repercussions, through the mechanism of the purchase of the currency by the Italian Exchange Office, on the rate of formation of monetary resources; and in fact the economic activity took place throughout the year under the sign of great liquidity. All funding items showed an increase, which was particularly high for bank current accounts and savings deposits; the flow of savings through the financial market also increased considerably. The lull in investment slowed the pace of growth in the economy’s demand for credit, and banks significantly increased their holdings. The primary liquidity reserves of the credit companies reached at the end of the year 10,

In order to promote the recovery of production and investment, the Issuing Institute reduced the discount rate and the interest rate on advances from 4 to 3.50 per cent, in June 1958. By virtue of the interbank agreement, the minimum rates applied by banks for active operations were reduced accordingly. A decrease of half a point was also made in interest rates on ordinary treasury bills. Finally, with effect from 1 January 1959, interest rates on bank deposits were also reduced by 0.50 per cent. No use was made of the compulsory reserve tool to reduce excess liquidity, not wanting to hinder the expansion of credit activity in any way. It was only in August 1958 that it was considered appropriate to extend the

On the financial market, liquidity led to a rapid increase in the prices of fixed-income securities and, starting from the second half of the year, also those of shares, despite the fact that the total issue of securities had passed between 1957 and 1958, from 550 to 937 billion. The prices of many fixed-income securities exceeded par and yields marked significant declines: between December and the next, the yield on government bonds fell from 7.34 to 5.68%, that of bonds from 7.12 to 6.24% and that of equities from 5.26 to 4.68%.

In the first half of 1959, the persistence of the stagnation of investments, the always reflective trend of prices and the uncertainties about the evolution of the economic situation abroad determined a temporary setback in the pace of development of industrial production, despite the fact that the demand for goods of consumption, and therefore the activity of the corresponding industries, remained at satisfactory levels. However, starting in July, the economic climate changed substantially. The need to replenish stocks, which were reduced to a minimum in the previous stagnation phase, the public investment programs put in place with a counter-cyclical function, the an increase in the domestic demand for durable consumer goods and services, the resumption of private investments and the improved export possibilities led to a rapid increase in industrial production, which on average in 1959 showed an increase of 11% over 1958. Agricultural production recorded an increase of 3% compared to the previous year, which was, moreover, exceptionally favorable. National income increased by 6.6% in real terms; the increase in investments (+ 8.4%) again exceeded that of consumption (+ 4.6%). Wholesale prices continued their downward trend until July 1959, to give rise, in the following months, to a certain recovery. The consumer price and cost of living indices showed a similar trend,

Italy Economy and Finance from 1954 to 1959 2