The Italian economy displayed a considerable capacity to recover in the summer, but the risks to financial stability owing to the macroeconomic situation have increased since the resurgence of the COVID-19 pandemic. This situation is affecting the outlook for growth, which will depend on the effectiveness and decisiveness of economic policy interventions. The progress made in creating a vaccine and distributing it on a large scale could have a favourable effect on the medium-term outlook.
Financial market conditions have improved greatly in Italy, as in the other European countries, and the tensions recorded in the spring have almost completely subsided. This is thanks above all to the effects of the pandemic emergency purchase programme (PEPP) and to the European Council’s agreement on Next Generation EU.
The economic policy measures adopted so far have helped to mitigate the consequences of the pandemic for firms and to meet their liquidity needs. Nevertheless, the Italian economy will have to address the vulnerabilities connected with the increase in the indebtedness of non-financial corporations and with the gradual lifting of the support measures. The risks to financial stability stemming from the household sector remain low.
Banks will have to deal with the probable deterioration in credit quality and with the connected pressure on profitability, but they can benefit from a sounder capital adequacy than in the past, thanks also to the regulatory reforms and to the interventions of the supervisory authorities. The solvency ratios of Italian insurance companies remain well above the regulatory minimum, despite having declined in the first half of the year. The liquidity risks for Italian investment funds remain limited.