Economic Bulletin No. 1 - 2018

The global economy remains strong

Global economic growth remains strong and widespread. In the euro area the outlook for growth improved further, though inflation remains weak, curbed by still modest wage growth in many euro-area economies. The ECB Governing Council recalibrated its monetary policy instruments, slowing down the pace of its asset purchases, but expecting monetary conditions to remain very accommodative.

The Italian economy continued to improve in the final months of 2017

According to our estimates, in the fourth quarter of last year Italian GDP rose by around 0.4 per cent, confirming the positive trend of recent quarters. Business surveys indicate that confidence is returning to pre-recession levels; conditions are also favourable for capital formation, confirmed by the acceleration in investment expenditure observed in the second half of 2017. The current account surplus remains large, contributing to a further improvement in Italy's net international debtor position. The number of persons in employment increased over the summer and, according to the latest cyclical indicators, in the closing months of 2017 as well; however, the number of hours worked per employee still remains below pre-crisis levels. Wage growth remains moderate but, based on the labour contracts renewed recently, shows some signs of recovery. The expansion in lending to households is strong and loans to firms have also increased. Bank credit quality continued to improve; the ratio of new non-performing loans to total loans is now below the levels recorded before the global financial crisis.

Our forecasts indicate that growth will continue in 2018

According to the projections presented in this Bulletin, Italian GDP, which increased by 1.5 per cent in 2017, is expected to grow by 1.4 per cent in 2018 and by 1.2 per cent in 2019‑2020; economic activity is likely to be driven mainly by domestic demand. Inflation is expected to dip slightly this year (to 1.1 per cent on average for the year, against 1.3 per cent in 2017) and then gradually climb up again. This scenario assumes that financial conditions remain accommodative. GDP performance will continue to depend on the support of expansionary economic policies, albeit to a lesser extent than in the past. The main risks continue to stem from global conditions and the performance of the financial markets; the risks connected with the conditions of the banking system and with the potential heightening of uncertainty on the part of households and firms over the resilience of the recovery under way have abated compared with the latest forecasting scenarios.