The risks to financial stability arising from developments in the world economy are growing; the growth forecasts for 2019 have been revised downward and uncertainty has increased. The more accommodative stance of central banks has been helping to improve financial market conditions since the start of the year.
Growth remains weak in Italy and the high level of public debt exposes the economy to market tensions. Though declining, the yields on private sector bonds remain higher on average than those prevailing in the other euro-area countries. The debt repayment capacity of the private sector remains high; it would decline considerably only in the event of a significant deterioration in cyclical conditions associated with a sharp rise in interest rates on loans.
Italy’s banking system continues to strengthen but profitability remains lower than that for European banks, and weak economic activity could push up credit risk costs again. Insurance companies’ solvency ratios have stabilized at levels well above the regulatory minimums, but they remain exposed to the risks stemming from significant changes in the value of public sector securities.
