World trade returns to growth, but global risks remain on the downside
The risks to global growth remain tilted to the downside. International trade has returned to growth and there have been signs that the tariff disputes between the United States and China have eased, but the outlook remains uncertain and geopolitical tensions are on the increase. Less pessimistic growth expectations, buoyed by the accommodative stance of the central banks, have nonetheless driven up share prices and have facilitated a moderate recovery in long-term yields.
Monetary accommodation is still necessary in the euro area
Economic activity in the euro area has been held back by the weakness of the manufacturing sector; particularly so in Germany despite a better-than-expected performance there in November. While growth in the service sector has been stronger up until now, there is the risk that it could also be affected. Developments in the economy have an impact on inflation, which according to Eurosystem projections is being sustained by monetary stimulus but is expected to remain below 2 per cent over the next three years. The ECB Governing Council has reaffirmed the need to maintain its current accommodative stance.
In Italy the industrial cycle held back GDP, while orders are stabilizing
The latest available data suggest that economic activity in Italy, which expanded slightly in the third quarter of last year, remained more or less unchanged in the fourth quarter and continued to be affected above all by the weakness of the manufacturing sector. In the surveys conducted by Istat and the Bank of Italy, firms have expressed slightly more favourable assessments of orders and foreign demand. Firms are planning to increase investment in 2020, albeit to a lesser extent than in the previous year.
Inflows of capital from abroad continue
In recent months, there has been substantial net foreign investment in Italian public securities (€90 billion between January and November 2019). The Bank of Italy’s negative balance on the TARGET2 European payment system has improved significantly, owing in part to the effect of the increase in net funding for Italian banks from abroad on the repo markets, facilitated by the introduction of the new remuneration system for banks’ reserves held with the Eurosystem.
The projections for Italy indicate a return to moderate growth
This Bulletin includes the macroeconomic projections for the Italian economy in the three years 2020-22, which update those prepared in December as part of the Eurosystem staff macroeconomic projection exercise. The central projection indicates an increase of 0.5 per cent in GDP this year, of 0.9 per cent in 2021 and of 1.1 per cent in 2022. Economic activity is expected to be supported both by the gradual recovery in world trade and by accommodative monetary conditions. Growth is exposed to considerable risks, linked to increasing geopolitical uncertainty, trade conflicts that have only been partly resolved and the weak economic performance of our main European partners. Any delay in implementing the large increases in planned public investment, which have been incorporated in the forecasting scenario, or a renewal of tensions on the financial markets, could lead to growth being lower than projected.
