Global growth remains robust - The world economy is continuing to expand, driven by the rapid growth of the emerging countries, the upturn in the United States and the firming up of the recovery in the euro area. According to IMF projections, the expansion of world GDP, which came to 5.0 per cent in 2010, will continue this year and next at a pace of about 4.5 per cent. World trade has accelerated again since the end of 2010 after a lull during the autumn. In Japan, where output recovered in the first two months of this year, the effects of the March earthquake are difficult to assess for the moment, given the scale of the disaster and the involvement of the Fukushima nuclear power plant.
Commodity prices continue to rise - In the first few months of the year the prices of raw materials continued to rise. Oil prices, which have been moving upwards since last summer owing to the strengthening of world demand, rose further in February following the revolts in North Africa and in the Middle East; futures contracts indicate they will stabilize in the coming months. The prices of food commodities rose again in the first four months, exceeding the peaks recorded in August 2008. In the advanced countries, the repercussions on consumer price inflation have been significant, but core inflation remains moderate. In the emerging countries, the inflationary pressures have intensified, stoked by economic growth close to potential growth rates.
Sovereign debt is still under pressure in some euro-area countries - The pressure on the sovereign debt of some euro-area countries, which has waxed and waned for over a year, intensified in February and early March, abating only in part following the 11 March meeting of the euro-area Heads of State and Government, who decided to expand the lending capacity of the European Financial Stability Facility and defined the characteristics of the European Stability Mechanism that will supersede it in 2013. The government crisis in Portugal and reductions in the country's credit rating subsequently caused a sharp increase in the risk premiums on its public debt, which subsided after approval of the official application for assistance from the European Union and the IMF.
In the euro area growth may have strengthened in the first quarter ... Euro-area GDP continued to expand in the fourth quarter of 2010, with an increase of 0.3 per cent from the third quarter. Growth for the year as a whole came to 1.8 per cent, but with national disparities: it was strong in Germany (3.6 per cent), more moderate in France and Italy (1.6 and 1.3 per cent) and virtually nil in Spain. In the first few months of 2011 economic activity may have strengthened; signals to this effect come from the index of industrial production and qualitative surveys of firms, which are reflected in the level reached by the €-coin indicator in March.
... while consumer prices have accelerated - Consumer price inflativo has increased, averaging 2.5 per cent year on year in the first quarter of 2011 (compared with 2.0 per cent in the previous quarter). This is largely attributable to the pick-up in energy and food prices, due to the rise in the prices of raw materials.
The Governing Council of the ECB raises official rates - With the economic recovery gaining traction and commodity prices rising sharply, in April the Governing Council of the European Central Bank increased the minimum rate on main refinancing operations by 25 basis points to 1.25 per cent.
In Italy, GDP continues to grow but at a slow pace - In the fourth quarter of 2010 Italy's GDP grew by 0.1 per cent compared with the previous quarter. On average for the year, it expanded by 1.3 per cent. Positive contributions came from the performanceof domestic demand (1.7 percentage points) and the recovery of exports (2.2 points); however, foreign trade's net contribution was negative by 0.4 points, owing to the rapid growth of imports induced by domestic demand. A modest acceleration in economic activity seems likely in the first quarter, as indicated by the slight recovery of industrial production and the livelier pace of exports in January and February. Industrial firms' confidence and their expectations for demand have improved to good levels.
Consumer spending is held back by declining real income - Households are still spending cautiously, in the light of labour market conditions and the trend in disposable income, which declined again in 2010 in real terms. Consumption returned to growth last year, but in recent months the upswing has not gathered momentum, judging by the performance of retail sales, which contracted in January, and by consumer confidence, which saw a gradual improvement come to a halt early in 2011. Expectations of price increases have also worsened slightly, in line with current trends in inflation.
Consumer prices reflect raw material costs - Consumer price inflation, which was stable at around 1.7 per cent in the second half of 2010, rose to an average of 2.3 per cent in the first three months of 2011 year on year, as measured by the general consumer price index. The increase was due above all to higher food and energy prices, which weigh more heavily on the purchasing power of the less affluent households, accounting for over 40 per cent of their consumption. Net of these components, core inflation remained low, despite a slight pick-up in the early months of the year due to increases for transport services and some items whose prices are regulated.
No recovery in employment - Output far below the prerecession level and the large number of workers still on Wage Supplementation have impeded the revival of job creation. After a slight gain in the fourth quarter, in January and February the number of persons employed lippe back o last summer's lows. Hiring for flexible and part-time employment returned to growth and the decline in permanent full-time positions continued. The unemployment rate was stable at its 2010 average, while the incidence of long-term and youth unemployment increased.
The budget deficit improves in 2010 - General government net borrowing came down by nearly one percentage point of GDP by comparison with 2009, to 4.6 per cent, 0.4 points lower than the official projections made in September. Net of interest payments the budget was broadly in balance. The deficit reduction was the result of decreases in the incidence of capital expenditure (0.9 percentage points of GDP), primary current expenditure (0.3 points), and interest expenditure (0.1 points). Current revenue returned to growth (0.9 per centin nominal terms), benefiting from a sharp rise in VAT receipts, owing in part to the adoption of stricter rules on offsets. The ratio of the public debt to GDP rose from 116 to 119 per cent, less than the average increase forecast for the euro area.
The objective of a deficit below 3 per cent in 2012 is confirmed ... The Economy and Finance Document for 2011-12 reaffirms the deficit forecasts and objectives. For 2011 net borrowing is expected to come down to 3.9 per cent of GDP. The better initial position thanks to the smallerthan- forecast deficit in 2010 is offset in this projection by the more prudent GDP growth forecast (1.1 instead of 1.3 per cent) and expected higher interest outlays. The net borrowing objective for 2012, which coincides with the current-legislation estimates, is set at 2.7 per cent of GDP, whose forecast growth has been recise downwards from 2.0 to 1.3 per cent.
... and rough balance is planned for 2014 - The Government aims to achieve a broadly bilance budget in 2014 through corrective measures amounting to 2.3 percentage points of GDP in 2013-14.
