Global growth continues, with differences across regions
Economic activity remains robust in the US but is losing momentum in the other advanced economies. According to our estimates, world trade will expand by just over 3 per cent in 2025, in line with the expected performance of global GDP. However, heightened geopolitical tensions and the announced tightening of US trade policy could have a negative impact on the outlook for international trade.
Monetary policy in the US continues to ease, though more gradually
In December, the Federal Reserve cut its benchmark rates again but a more gradual normalization of monetary policy is expected, given the slower decline in inflation. In the same month, the Bank of England and the Bank of Japan kept their rates unchanged. In China, a new package of measures to support domestic consumption will flank the People's Bank of China's commitment to maintain an expansionary monetary policy stance.
Euro-area GDP slows, inflation hovers around 2 per cent
GDP growth in the euro area declined in late 2024. The trend in manufacturing remains weak, especially in Germany; the boost from services appears to have waned too. Inflation stands at around 2 per cent, with the core component being broadly stable. According to the Eurosystem staff projections released in December, euro-area growth will gradually increase over the year, averaging above 1 per cent in the three years 2025-27; inflation is set to stabilize around the 2 per cent target.
The ECB cuts its key interest rates further
The ECB Governing Council cut its reference rates by a further 25 basis points in December. Although the gradual easing of monetary policy is passing through smoothly to the cost of credit, growth in loans to firms and households in the euro area remains modest, in an environment of high uncertainty and weak demand.
Economic activity is struggling to regain momentum in Italy
After stagnating in the summer, growth in Italy is still weak. As in the rest of the euro area, the persistent sluggishness in manufacturing is accompanied by the slowdown in services. Activity continued to expand in construction, partly supported by the works under the National Recovery and Resilience Plan. According to our projections, growth will gain momentum throughout the year, thanks above all to the acceleration in consumption and in exports, and will average around 1 per cent in the three years 2025-27.
The current account surplus decreases
In the fourth quarter of 2024, Italian exports were likely held back by demand falling sharply. Looking ahead, the protectionist policies announced by the new US administration are expected to have an impact on Italian firms' foreign sales. The current account balance narrowed in the third quarter, though it remained positive. Foreign investors' purchases of Italian government securities remain high, and the yield spread between ten-year Italian and German government bonds has narrowed.
Growth in employment continues, though with signs of the labour market weakening
Although headcount employment continues to increase, the number of hours per worker is falling and recourse to wage supplementation remains high, especially in manufacturing. The gradual decline in the labour force participation rate continued in the autumn too, contributing to reduce the unemployment rate to an exceptionally low level. Robust growth in contractual wages in the private sector is helping the gradual recovery in households’ purchasing power.
Inflation remains under 2 per cent
Consumer price inflation remained well below 2 per cent in the final months of 2024 too. Firms expect modest increases in their selling prices in 2025. According to our forecasts, consumer price inflation will stand at 1.5 per cent on average in 2025-26 and at 2.0 per cent in 2027.
The cost of lending falls slightly, but demand for loans remains limited
The cuts in the key ECB interest rates are being passed through to the cost of bank funding and the cost of credit. At a time of weak investment, firms' demand for loans remains modest. Household mortgage loans continue to recover gradually.
Parliament approves the Budget Law for 2025-27
According to the Government's assessments, the Budget Law approved in December will raise the ratio of net borrowing to GDP by 0.4 percentage points in 2025, 0.6 points in 2026 and 1.1 points in 2027. About half of the additional resources for expansionary measures are being used to turn the measures for adjusting the personal income tax (IRPEF) and lowering the tax wedge into structural ones. The European Commission has given a positive assessment of the fiscal adjustment programme outlined in Italy's medium-term structural fiscal plan.
