The risks linked to world growth remain elevated. The prospect of continued modest growth in Europe and uncertainty about political developments in the main advanced economies could fuel sharp swings in financial asset prices in the coming months. Tensions in the euro area are being mitigated by the Eurosystem’s monetary policy. Since the US elections bond yields have risen in all the leading economies and the spread on Italian government securities has widened.
In Italy, the economic recovery, though weak, is helping to repair banks’ balance sheets. Both the flow of new bad debts and their share of total loans are diminishing. Banks’ financial situation is improving, albeit slowly, and liquidity conditions are generally favourable. The earning capacity of Italian banks is still poor, as is that of the other European banks. Investors’ concerns about low profitability and the still high level of NPLs have affected share prices, which have fallen since the beginning of the year. Overall, banks remain vulnerable to both domestic and international shocks that may impact on capital markets and economic growth.
The financial position of households remains sound thanks to their low level of indebtedness; higher disposable income and low interest rates are facilitating debt service. The financial situation of firms is also improving, thanks both to the recovery of profitability and the lower weight of interest expenses in gross operating profit. Expectations regarding the profits of insurance companies are affected by financial market uncertainty and slower economic growth but their profitability in the first half of the year was stable at the level of 2015.
