The global economy loses momentum
In the fourth quarter of 2018 global economic activity decelerated and world trade decreased. Various risk factors continue to weigh on the economic outlook: protracted trade tensions, despite recent signs of an easing; a greater than expected cyclical slowdown in China; and the effects of the United Kingdom's process of withdrawing from the European Union (Brexit). The main central banks have signalled their intention to maintain an expansionary monetary policy stance for longer, favouring a reduction in long-term yields and a recovery in share prices.
The ECB Governing Council prolongs expansionary conditions
For 2019, growth prospects in the euro area have been revised downwards significantly and inflation expectations have fallen. The ECB Governing Council will maintain expansionary conditions for longer: it has extended the minimum time horizon over which it expects to keep its key interest rates unchanged at least through the end of 2019 and has announced a new series of targeted longer-term refinancing operations whose pricing, to be defined in the coming months, will take account of future economic developments. The Governing Council stands ready to utilize all the instruments at its disposal to support the economy and to ensure the convergence of inflation to levels that are below, but close to, 2 per cent over the medium term.
Economic activity in Italy seems to have recovered slightly
The latest indicators point to a slight recovery in economic activity in Italy at the start of this year, after it declined in the second half of 2018. The weak cyclical conditions observed in the last few quarters mirror conditions in Germany and in the other euro-area countries. The firms interviewed in the Bank of Italy's survey gave negative assessments of demand conditions, especially in relation to purchases by Germany and China, but they expect a moderate improvement for the current quarter; planned investment for 2019 has been revised downward. According to firms, the outlook is affected by uncertainty stemming from economic and political factors and by global trade tensions.
Export developments remain favourable
Italian exports continued to perform favourably, expanding at a steady pace in the fourth quarter of 2018, despite the drop in international trade. Nevertheless, qualitative indicators confirm that uncertainty stemming from global conditions is weighing on the outlook. The current account surplus remains sizeable and the net international investment position is only slightly negative. At the start of 2019, non-resident investors resumed purchases of Italian government securities.
Employment appears to stabilize; wage growth continues
Based on the latest data, the moderate decline in employment, which reflected weak cyclical conditions in the fourth quarter, did not carry over into January and February. The total number of persons in employment increased in 2018, as did the number of permanent contracts. Contractual earnings continued to rise.
Inflation declines
Inflation declined in the first quarter of 2019, partly on account of the slowdown in the prices of energy products and the weakness of the economy; it stood at 1.1 per cent in March. The core component also weakened. Firms, households and analysts revised their inflation expectations downwards; in April, Consensus Economics reported an expected inflation rate of 0.9 per cent for 2019.
Conditions improve on the Italian financial market
The improvement in the global financial markets also extended to Italy. Since the start of the year, the general index of the Italian stock market has gained 19 per cent, recouping the sharp decline recorded in the autumn. The increase, partly induced by the Eurosystem's decision in March to ease monetary conditions, extended to the share prices of credit institutions. After a temporary increase in February, triggered by the downward revision of economic growth expectations, sovereign risk premiums returned to the levels recorded at the end of December. However, they remain well above the levels prevailing at the start of 2018. The yield spread between Italian and German ten-year bonds stood at around 250 basis points in mid-April.
Lending to firms slows
Lending to firms has slowed. The increase in yields on government securities and the cost of banks' bond funding is only gradually being transmitted to credit conditions, thanks to high levels of liquidity and banks' favourable capital conditions. However, surveys show some signs that credit supply conditions are tightening, owing to both the deterioration in the macroeconomic outlook and the increase in funding costs. The ratio of new non-performing loans to outstanding loans continued to fall, reaching 4.1 per cent at the end of 2018 for significant banks, net of loan loss provisions.
The Government submits the 2019 Economic and Financial Document
In 2018, general government net borrowing fell to 2.1 per cent of GDP, from 2.4 per cent in 2017. The debt-to-GDP ratio rose to 132.2 per cent of GDP. In the 2019 Economic and Financial Document, approved on 9 April 2019, the Government revised its net borrowing estimates for 2019 from 2.0 per cent to 2.4 per cent. In the planning scenario for the coming years, both the deficit and the debt are expected to decline, partly on account of the revenue expected from the application of the safeguard clauses.
