The global economy loses momentum
Towards the end of 2018 global economic activity decelerated and world trade decreased. Various risk factors continue to weigh on the economic outlook: protracted trade tensions, despite recent signs of an easing; a greater than expected cyclical slowdown in China; and the effects and timeframe of Brexit. The main central banks have signalled their intention to maintain an expansionary monetary policy stance for longer.
The ECB Governing Council prolongs expansionary measures
For 2019, growth prospects in the euro area have been revised downwards significantly and inflation expectations have fallen. The ECB Governing Council has extended the time horizon over which it expects to keep its key interest rates unchanged at least through the end of 2019 and has announced a new series of targeted longer-term refinancing operations to preserve favourable conditions in the credit market and the orderly transmission of monetary policy.
Economic activity in Italy seems to have recovered slightly
The latest indicators point to a slight recovery in economic activity in Italy at the start of this year, after it declined in the second half of 2018. The weak cyclical conditions observed in the last few quarters mirror conditions in Germany and in other euro-area countries. The firms interviewed in the Bank of Italy's survey gave negative assessments of demand conditions, especially in relation to Germany; planned investment for 2019 as a whole has been revised downward.
Conditions improve on the Italian financial market
The improvement in the global financial markets also extended to Italy. Sovereign risk premiums stabilized at around the levels recorded at the end of last year but remain well above those prevailing at the start of 2018. Nevertheless, the increase in yields on government securities and the cost of banks' bond funding is only gradually being transmitted to credit conditions, thanks to high levels of liquidity and banks' favourable capital conditions.
