Italy Economy and Finance from 1949 to 1953 Part 2
The outbreak of hostilities in Korea brought about a sharp turnaround, starting a phase dominated by the inflationary psychosis of wartime. Following the increase in prices on international markets, the import price index increased, within a year, by more than a third, with a peak of 45% in the raw materials sector; in turn, the index of domestic wholesale prices recorded an increase of over 20 per cent, between June 1950 and February 1951. The strong increase in demand, both domestic and foreign, caused by the rush to hoard goods, favored the development of industrial activity, which showed an increase of the order of 20% in the months between September 1950 and March 1951.
In the sector of economic relations with foreign countries, the worsening of the terms of trade (i.e. the relationship between export prices and import prices) did not immediately turn into a worsening of the trade balance, due to the strong quantitative development of exports.. In the second half of 1950 the balance of ordinary current account recorded a surplus of 40 million dollars, which increased to 175 million with the help of American aid. In the sector of the movement of capital, however, mainly as a result of higher prepayments for imports, there was a negative balance of 218 million dollars, so that the half-year ended with a decrease of 43 million dollars in the available currency on the abroad. In the first half of 1951,
The greater disbursements of currency to pay for imports determined, in the period July 1950-June 1951, a significant contraction in the volume of monetary availability, while the demand for credit for financing the recovery of production and for the hoarding of goods increased significantly. As a result, the lending-deposit ratio of the banks passed between June 1950 and June 1951 from 69 to 76 per cent, and the ratio of primary liquidity reserves to deposits fell from 11.6 to 8.8 per cent. In these circumstances, the policy of the Issuing Institute aimed, through the limitation of deferral and advances and a stricter examination of the requests for waivers of credit, to hinder the granting of loans for speculative purposes,
In the spring of 1951, with the diminishing of international political tension, the first symptoms of a reversal of the conjuncture began to appear. Starting from March, coinciding with the trend of prices on international markets, the index of wholesale prices inside began to decline, decreasing in the space of 16 months by about 10%. In the consumer goods sector, final demand lost that extraordinary impulse that derived from the bullish psychosis and subsequently contracted, causing a decline in the level of production of the corresponding industries. Towards the end of the year, while the domestic demand for consumer goods was stabilizing at more normal levels, the decline in foreign demand took place, especially for textile products, which was the
In the second half of 1951 the trade balance improved significantly due to the favorable trend in exports and the improvement in terms of trade, while the balances of the services and unilateral transfers sectors returned to being active, causing the current account sector to close virtually in balance. ordinary. In turn, US aid and foreign capital inflows led to an increase in foreign exchange reserves by over $ 250 million. During 1952, the crisis in the textile sector and the restrictions on trade adopted by some Western European countries significantly reduced exports, while the development of investments in internal and the policy of progressive trade liberalization pursued by our country contributed to increasing imports; consequently the mercantile balance closed with a deficit of 747 million dollars. The positive balances recorded in the other items of the balance of payments failed to make up the difference and the year ended with a decrease of 93 million dollars in foreign exchange reserves.
According to TOP-MEDICAL-SCHOOLS, the inflow of foreign currency was the main cause of the increase in monetary availability which occurred in the second half of 1951 and in the first months of 1952. In the remaining months of 1952, the decrease in liquidity caused by the loss of foreign currency was more than offset by the increased spending from the state budget and major increases in social security pension payments. The greater monetary availability thus formed went for the most part to increase the savings deposits and current accounts of the banks, allowing them to considerably increase their loans. The loan-to-deposit ratio, which, after the monetary squeeze of June 1951 had dropped significantly to a minimum of 68.5% at the end of March 1952, rose again in December to 71.3%.
The downward phase of the Korean economy ended in mid-1952 and it was replaced by a new phase of significant production progress. The index of the production of consumer goods, which in May 1952 had returned to roughly the level of June 1950, began an upward movement from that date, under the pressure of a growing internal demand and a somewhat improved foreign demand, reaching in December 1953 to slightly exceed the peak of the rising phase of the Korean economy. In connection with the sustained effort to increase investments and so-called basic production, the indices of the production of capital goods and auxiliary materials for industry, which in the downward phase of the Korean economy had only slowed down their pace of development,