The global outlook remains favourable but the risk of protectionist policies
After the slowdown observed in the first quarter, the short-term outlook for the global economy remains positive overall. While continuing to expand, world trade decelerated: there is an increasing risk that global trade and the activities of firms operating on the international markets could be held back by an exacerbation of commercial tensions between the United States and its main trading partners.
The ECB will end its net asset purchases but will maintain expansionary conditions for an extended period of time
Growth continues in the euro area despite the slowdown recorded in recent months. The Governing Council of the ECB concluded that progress towards a sustained adjustment in inflation to levels below, but close to, 2 per cent has been substantial so far but that uncertainty has not been fully dispelled. Consequently, it expects to wind down its net asset purchases at the end of the year but will maintain an ample degree of monetary accommodation by keeping interest rates at their current low levels at least through the summer of 2019, reinvesting the principal payments from maturing securities, and continuing to consider the asset purchase programme as one of its available instruments.Growth continues in the euro area despite the slowdown recorded in recent months. The Governing Council of the ECB concluded that progress towards a sustained adjustment in inflation to levels below, but close to, 2 per cent has been substantial so far but that uncertainty has not been fully dispelled. Consequently, it expects to wind down its net asset purchases at the end of the year but will maintain an ample degree of monetary accommodation by keeping interest rates at their current low levels at least through the summer of 2019, reinvesting the principal payments from maturing securities, and continuing to consider the asset purchase programme as one of its available instruments.
Italy’s economy continues to expand, though more slowly in the second quarter
According to our estimates, the Italian economy continued to grow despite the signs of a slowdown that emerged in the spring. The available indicators suggest that industrial production was stationary in the second quarter, while activity in the service sector continued to increase. Overall, GDP appears to have risen by around 0.2 per cent on the previous period, with downward risks connected to the weakness of manufacturing.
Slowing world trade affects exports
Exports in all the main euro-area economies have been affected by the slowdown in world trade at the beginning of the year. In Italy, after the marked upswing observed in 2017, sales abroad fell in the first quarter of 2018.
Youth unemployment declines gradually
Employment has reached levels close to the highs of early 2008. In the spring it grew in both the fixed-term and permanent components. Total unemployment has remained stable while youth unemployment is decreasing gradually. The upward trend in wages has continued, but their pace of growth is still modest.
Energy prices drive up inflation
Inflation has risen, reaching 1.5 per cent in June, driven in part by the increase in energy prices. Core inflation has also recovered after falling sharply in April, but remained at 0.7 per cent in June. Households and firms expect price growth to remain moderate on average for the rest of the year and to be less marked compared with the expectations prevailing last March.
Business lending remains positive
Business loans continue to expand, driven by relaxed supply conditions and low borrowing costs, and by the positive performance of investment. Lending to households has remained strong for both home purchase and consumer credit. The ratio of the stock of NPLs to total outstanding loans continued to diminish.
Financial market volatility increases
Between late May and early June, volatility was very high in Italy’s financial markets, in connection with the uncertainty around the formation of the new government. The yields on Italian government securities rose, including for shorter maturities, and share prices fell, especially in the banking sector. The tensions have been partially reabsorbed starting in the second week of June: short-term yields have fallen markedly, while Italy’s sovereign spreads measured by the yields on ten-year bonds have narrowed by 48 basis points since the peak in tensions, but remain 111 points higher than in mid-May.
The projections for Italy assume continued growth in
The macroeconomic projections presented in this Economic Bulletin indicate that economic growth will continue in the next three years, though its pace will be affected by higher crude oil prices. Based on annual data (not calendar-adjusted), GDP will increase by 1.3 per cent this year, 1.0 per cent next year, and 1.2 per cent in 2020. While remaining slightly below the euro-area average, inflation will gradually rise over the next three years, including in the core component, which should reach 1.5 per cent under the assumption that expectations will continue to improve and that this will translate into a gradual upturn in nominal wages.
This scenario presupposes a favourable global economic environment, relaxed credit supply conditions and a broadly expansionary monetary policy stance that incorporates the monetary policy decisions adopted by the ECB Governing Council. It takes account of previously approved budgetary measures but not of measures that are not yet sufficiently detailed or included in current legislation. The resulting scenario is compatible with a gradual reduction of the debt-to-GDP ratio.
The risks are mostly connected with developments in world trade
The risks to economic activity mostly stem from an accentuation of the protectionist stance in the main economic areas. Repercussions on global demand could arise not only from the direct effect on trade, but also via confidence and firms’ investment plans. Sudden surges in financial market volatility, connected to a rekindling of uncertainty about economic policies, could affect the cost of borrowing for households and firms. In the Italian market, continued favourable financial conditions rely on a credible process for consolidating the public finances and on action to support long-term growth potential. Regarding inflation, downward risks could derive from weaker economic activity, while upward risks could come from fresh increases in the prices of energy commodities, which at the beginning of July reached their highest levels since the end of 2014.
