The global economy continues to benefit from the effects of the vaccination campaign and the expansionary policies of monetary and fiscal authorities. However, signs of a slowdown have emerged in the last few months owing to the supply bottlenecks that, together with the increase in commodity and energy product prices, are also causing more persistent than expected price pressures. Based on our current evaluations, the impact on long-term inflation expectations has been modest so far. On the financial markets, the sovereign spreads of some euro-area countries recorded a marked increase between the end of October and the start of November, in connection with fears about a possible reduction in monetary accommodation.
In Italy, the risks to financial stability are moderate; medium-term vulnerabilities persist, connected above all with the possibility that economic growth, which is currently solid, may lose momentum. The Eurosystem's public and private sector securities purchase programmes are helping to keep financing conditions relaxed, including in the government bond market. Spreads on corporate bonds remain at historically low levels in both the investment grade and the high yield market segments. The steady reduction in firms' default rates, made possible by the good performance of the economy, mitigates the risk of sudden falls in bond prices.
The gradual recovery in the real estate market continues, in line with the current economic conditions. The risks to financial stability originating in this sector remain low, in contrast to what has been observed in other European countries, where property prices are growing markedly and there are signs of overvaluation.
The risks connected with the financial situation of households remain limited overall. The cyclical improvement and the support measures have translated into overall growth in saving and financial wealth, though it is uneven across the various categories of the sector. Indebtedness is increasing moderately but remains low by international standards; loan repayment capacity is good, in part thanks to low interest rates; and the share of debt held by financially vulnerable households is relatively low.
The upturn in profitability, the abundant liquidity accumulated during the pandemic and the favourable financing conditions are all contributing to a significant improvement in firms' balance sheets. Thanks to the solid economic recovery, the gradual phasing out of public support measures is taking place without generating any tensions. Risks could stem from changes in the economic situation and in firms' profitability that are less favourable than currently anticipated.
The Government's support measures for households and firms and the economic recovery have helped to mitigate the effects of the pandemic on the quality of banks' assets. The new non-performing loan rate is stable, at historically low levels, and the disposal of non-performing loans continues. Nevertheless, performing loans classified as forborne exposures have increased, above all among borrowers that have benefited from debt moratoriums. It is important for banks to be particularly prudent when assessing the repayment capacity of debtors and in their subsequent decisions on provisioning.
Looking ahead, sources of vulnerability for financial intermediaries may stem from the growing digitalization of financial services and the increased outsourcing of activities, which raise exposure to cyber and business continuity risks. Awareness of these new risks as well as their integration into governance and control systems are vital for intermediaries in order to counter them effectively.
Banks' profitability improved considerably in the first half of the year, mainly owing to the fall in loan loss provisions. Other contributory factors, such as trading profits, are temporary and may not extend to the second half of the year. Capitalization fell slightly, above all due to the phasing out of the transitional prudential arrangements connected with the adoption of IFRS 9. It should only be slightly affected by the resumption of the payment of dividends tied to the lapsing of the recommendations issued by the supervisory authorities, which had limited dividend distribution during the public health emergency.
The insurance sector has returned to pre-pandemic conditions. The average solvency ratio of insurance companies rose further in the first half of 2021.
Profitability and premium income have increased, thanks to the good performance of the life sector.
The positive trend in net subscriptions of investment funds continues. The share of assets under management of funds vulnerable to changes in the margin requirements has grown slightly; the increase is attributable to a limited number of funds that have not, however, experienced tensions in managing redemptions. The risks to financial stability from this sector remain low.
