Growth consolidates in the euro area but inflations remains weak
The positive signs concerning economic growth in the euro area improved further, against the backdrop of stronger recovery in the world economy and in international trade. However, inflation surprisingly fell below the expectations of the last few months, and core inflation remains weak. Since the last week of June long-term yields on the government securities of the advanced countries have picked up, reflecting expectations of less accommodative monetary conditions in the United States and the strengthening of economic activity in the euro area; nevertheless, they remain low. The ECB Governing Council believes that a substantial degree of monetary accommodation is still needed to secure a sustained adjustment of inflation towards its aim.
In Italy economic activity gathers momentum
Our estimates show that in Italy GDP growth continued in the spring, settling at around 0.4 per cent, as in the first quarter. GDP appears to have benefited from the positive trend in the service sector and from the recovery of value added in industry, following the brief dip recorded at the start of the year. Firms’ assessments of investment conditions improved across all sectors; exports continued to expand in the first part of the year; the outlook for foreign orders is positive.
Employment growth proceeded despite the ending of the incentives to hire new staff on permanent contracts. Credit to the non-financial private sector continued to record modest growth, sustained by loans to households. Corporate lending, which was slowed in part by firms’ abundant liquidity, remained differentiated according to firm size and sector of economic activity. Credit quality improved further, thanks to the more favourable economic conditions.
Growth projections are revised upwards
Based on the projections presented in this bulletin, Italy’s GDP should increase by 1.4 per cent this year, 1.3 per cent next year and 1.2 per cent in 2019. Compared with last January’s projections, growth has been revised significantly upwards, reflecting the acceleration of economic activity since the start of the year and the favourable developments in foreign demand and in the energy commodity markets. Consumer price inflation will remain low this year and next year, and rise to 1.6 per cent in 2019, in response to a moderate acceleration in wages.
This scenario rests of the assumption that monetary and financial conditions will remain expansionary, in line with market expectations. These growth projections are subject to mainly downside risks: in addition to the uncertainties linked to the financial markets there are those connected with future global economic and trade policies. Downside risks to inflation could stem from slower than projected wage growth, while the evolution of energy commodity prices in the near future continues to be highly uncertain.