Bollettino Economico n. 3 - 2018

The global outlook remains favourable but the risk of protectionist policies increases

The short-term outlook for the global economy remains positive overall. However, there is an increasing risk that global trade and the activities of firms operating on the international markets could be held back by an exacerbation of commercial tensions between the United States and its main trading partners.

The ECB Governing Council will wind down its net asset purchases but will maintain expansionary conditions for an extended period of time

Growth continues in the euro area despite the slowdown recorded in recent months. The ECB Governing Council concluded that progress towards a sustained adjustment in inflation to levels below, but close to, 2 per cent has been substantial so far but that uncertainty has not been fully dispelled. Consequently, it expects to wind down its net asset purchases at the end of the year, but will maintain an ample degree of monetary accommodation.

Italy’s economy continues to expand, though more slowly

According to our estimates, the Italian economy continues to grow despite the signs of a slowdown that emerged in the spring; in the second quarter, GDP appears to have risen by around 0.2 per cent on the previous period, with downside risks connected to the weakness of manufacturing. As in the other main euro-area economies, sales abroad fell in the first quarter of 2018, affected by the slowdown in world trade.

Labour market conditions improve further; core inflation remains low

Employment has reached levels close to the highs of early 2008. In the spring it grew in both the fixed-term and permanent components. Total unemployment has remained stable while youth unemployment is decreasing gradually. The upward trend in wages has continued, but their pace of growth is still modest. Inflation has risen, mainly driven by the increase in energy prices. Core inflation has also recovered after falling sharply in April, but remained at 0.7 per cent in June.

Business lending continues to grow

Business loans continue to expand, owing to the positive performance of investment against a backdrop of relaxed supply conditions and low borrowing costs. The ratio of the stock of NPLs to total outstanding loans diminished further, as in 2017.

Financial market volatility increases

Between the end of May and the start of June, volatility was very high in Italy’s financial markets, in connection with the uncertainty around the formation of the new government. The tensions were partly reabsorbed from the second week of June onwards: the yields on Italian government securities have fallen markedly, while Italy’s sovereign spreads measured by the yields on ten-year bonds have narrowed by 48 basis points since the peak in tensions, but remain 111 points higher than in mid-May.

The projections for Italy indicate continued growth in 2018-20

The macroeconomic projections presented in this Economic Bulletin indicate that economic growth will continue in the next three years, though its pace will be affected by higher crude oil prices. GDP is projected to increase by 1.3 per cent this year, 1.0 per cent next year, and 1.2 per cent in 2020. While remaining slightly below the euro-area values overall, inflation will gradually rise, including in the core component, which should reach 1.5 per cent under the assumption that expectations will continue to improve and that this will translate into a gradual upturn in nominal wages. This scenario presupposes a favourable global economic environment, relaxed credit supply conditions, a broadly expansionary monetary policy stance that incorporates the monetary policy decisions adopted by the ECB Governing Council, and a gradual reduction of the debt-to-GDP ratio. The risks to economic activity mostly stem from a more protectionist stance in the main countries.