Infrastructure, capital markets and opportunities for the real economy in the post-pandemic landscape

Equita, the leading independent investment bank in Italy, and Bocconi University are delighted to announce the publication of the fourth quarterly column on capital markets edited by the EQUITALAB, the initiative that promotes applied research and policy impact, and that exploits the multidisciplinary knowledge and expertise of BAFFI CAREFIN – Centre for Applied Research.

Pandemic has demonstrated how much governments have underinvested in social infrastructure and how unprepared they were to tackle the dramatic effects of the spread of the virus. Covid-19 consequences have revived the debate on the ability of infrastructure investment to stimulate output and its effect on inflation, considering that it combines demand stimulus with long-term support for the production of goods. This begs the question: is investment infrastructure a stimulus to the economy in the short run? Does it improve production capacity and ultimately economic growth in the long run?

The newly published column focuses on how infrastructures and capital markets are linked and how they are important for the real economy, especially in a post-pandemic landscape. It first looks at the importance of infrastructure in the current macroeconomic scenario and gives indications on the infrastructure gap and the megatrends impacting the infrastructure space. It also provides the outlook for infrastructure investments in Europe and Italy, showing key evolutionary trends in the medium term. The quarterly also details how the current situation of infrastructure investments in Italy is, together with indications as to how private investors perceive the pros and cons of investing in the Italian market. Broadly speaking, due to a long period of quantitative easing and financial repression, private investors have turned to infrastructure as a convenient alternative to traditional asset classes and as a ‘safe harbour’ able to provide the DIY effect: diversification, inflation protection and yield.

An in-depth description of the Italian NRRP and its implications for the development of the Italian financial market are also provided in the column, and conclusions and policy recommendations are presented by the team. While the analysis of the NRRP shows a number of positive aspects, some issues remain unresolved. First, to ensure that the full amount of funds in the NRRP is disbursed, Italy must approve an ambitious set of vital reforms on which there is no strong political consensus yet. Second, the efficient deployment of these resources is undermined by surging energy costs, raw material shortages and supply chain bottlenecks that are already delaying the execution of the investment programmes currently in place. Third, a clear strategy is lacking to attract the big pool of financial resources from private capital through virtuous forms of Public-Private Partnerships (PPPs).