In 2023, the global economy is expected to slow, but less than forecast last autumn
In the early months of the year, the global economy and international trade remained weak, owing to continued geopolitical uncertainty and persistently high inflation in the main advanced economies. The international institutions confirmed the prospect of global GDP slowing this year, albeit less so than was estimated in the autumn of 2022.
Monetary tightening continues in the main advanced economies and tensions have emerged on the international markets
In the early months of this year, the Federal Reserve and the Bank of England decided on further increases in their policy rates. Global financial market conditions had deteriorated since mid-January, affected by expectations of greater and more prolonged increases in policy rates; since 9 March, the failure of some banks in the United States and Switzerland has led to a sharp increase in risk aversion and greater volatility.
Growth in economic activity is weak in the euro area and inflation falls, while core inflation rises
Economic activity made a slight return to growth at the beginning of the year. Consumer price inflation declined further owing to the marked fall in the energy component, but the food component and core inflation increased again. The ECB Governing Council increased its key interest rates by 50 basis points at both its February and its March meetings, bringing the reference rate to 3.0 per cent. The Council also said that the high level of uncertainty is making it all the more important to adopt future decisions meeting by meeting and to take a data-dependent approach.
GDP in Italy appears to have increased slightly in the first quarter of 2023
According to our models, economic activity increased slightly in Italy in the first quarter of this year, driven by the manufacturing sector, which benefited from energy prices falling and supply chain bottlenecks easing. Household spending remained weak, as inflation was still high. Capital accumulation instead continued. In the early months of the year, growth in Italian exports remained positive, the current account balance returned to positive territory and employment continued to rise.
The fall in inflation is driven by the energy component, while core inflation remains high
Inflation went down on average in the first quarter (to 8.2 per cent in March) but core inflation rose, continuing to be affected by the pass-through to final prices of the higher costs linked to the energy shocks. Wage growth remained moderate; firms' profit margins increased slightly.
Bank lending falls markedly; financial conditions are affected by tensions in the international markets
The rise in policy rates continues to pass through to the cost of credit. Bank loans contracted between November and February, particularly those to firms, owing to weaker demand and tighter credit standards. Financial market conditions have deteriorated in Italy too since mid-January. In March, the difficulties of some banks in the United States and Switzerland led to downward pressures on equity prices, above all in the financial sector. Euro-area banks, including Italian ones, are in a far better position than was observed during crises in the past, thanks to high capitalization, abundant liquidity, and profitability recovering strongly.
The public finances improve in 2022
The ratio of general government net borrowing to GDP fell by 1 percentage point last year, to 8.0 per cent. The debt-to-GDP ratio fell significantly, in part due to the favourable trend in the gap between the average cost of the debt and nominal GDP growth.
