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Economic outlook and market contexts

Economic outlook and market contexts

Macroeconomic scenario

 According to recent estimates of the International Monetary Fund (source: World Economic Outlook Update, July 2018), the Italian economy will continue to grow in 2018, although more slowly than 2017. Specifically, the growth rate of GDP is expected at +1.5%, whereas the inflation rate will be steady at +1.3%. In line with the persisting expansionary trend of the economic cycle, the labour market is expected to improve, with employment projected to grow by 0.9%, alongside a slight decrease in the unemployment rate to 10.9% (source: Bank of Italy, Macroeconomic Projections for Italy, July 2018).

Monetary policy and interest rates

In June 2018, the European Central Bank (ECB) announced the end of the asset purchase programme, known as “quantitative easing”, with effect from December 2018. Nevertheless, the monetary policy will continue to be accommodative, due to the reinvestment of the principal payments from maturing securities and key policy rates unchanged at least through the summer of 2019. With regard to the main bank interest rates, the average rate on funding from resident customers fell steadily reaching levels very close to zero. In the sovereign debt market, there has been an escalation of tensions starting as of mid-2018 on the Italian 10-year government bond, resulting in a widening of the yield spread with respect to the German and French counterparts.

Lending and funding in CDP’s reference market

In light of the economic recovery, the credit sector has shown a positive trend in the first half of 2018. On the funding side, the relative stability and the excellent performance of deposits reflected in the lower use of financing from the ECB. On the other side, bank loans to the private sector (adjusted for securitisations) showed a positive dynamic, as a result of the solid performance of loans to households and of loans to enterprises returning to growth. Bank lending to General Government decreased. The prospects of bad loans held by Italian banks have also improved in terms of both new inflows and volume, continuing the downward path started as of June 2017. Also Italian families benefited from the positive economic and financial trend, with their wealth reaching approximately over 4 trillions euro.

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Between January and April 2018, international trade volumes grew by 4.3% marking an acceleration with respect to the first four months of the previous year. Italian exports also increased in the same period (+4.1%), thanks to EU countries (+6.1%), including Austria, France, Germany, the Netherlands, Poland and the Czech Republic. Outside the common market (+1.5%), exports were driven by India, Mercosur members and Switzerland, where the demand for Italian products remained steady (above 9%). Exports declined towards North Africa (-6.9%), the Middle East (-7.6%) and OPEC countries (-10.1%).
 

The sectors that performed better were metalworking (7.7%), electronics (7.0%), pharmaceuticals (6.3%), food & beverages and transport equipment (excluding motor vehicles, that is, those products that are reference products in the demand for export credit insurance cover), in which exports increased by over 5%.

In an economic system like Italy’s, characterised by small-sized family run businesses, the professional expertise of institutional investors can be fundamental in managing generational transition processes, by supporting business owners with active governance monitoring and new management expertise.
 

In Italy the stock market is still rather limited, though showing interesting signs of growth in the last two years. At the end of December 2017, according to Borsa Italiana there were 421 companies officially listed in Italy, up by about 9% with respect to the previous year (387 companies). Of these companies, 241 are listed on the MTA - Italian Equities Market (71 in the STAR segment), 3 on the MIV - Mercato degli Investment Vehicles, 82 on the GEM - Global Equity Market and 95 on the AIM Italia (source: Borsa Italiana). In France, instead, there were more than 1,000 listed companies in total. 
 

The market penetration of private equity continues to be limited. In 2017 the private equity market represented 0.22% of GDP, against a European average of 0.44% (source: Invest Europe). In 2017, private equity funds invested 4.9 billion euro in Italy in 311 transactions, recording an annual growth rate of 10% since 2010 (source: AIFI).

In the first quarter of 2018, the Italian real estate market continued to recover in terms of transaction volumes. At overall level, after the initial leap forward in 2016, growth rates are now down to single digit reflecting a weaker demand. According to Nomisma, the Italian property market is essentially running at two speeds: the residential market has now reached a turning point, while the non-residential market, though slowly recovering lost ground, is still seeing higher price drops and longer selling times.
 

Despite the gradual recovery of transaction volumes, real estate prices are still falling. One new factor is the recovery in the investment property segment, whose stimulus will be decisive in bringing prices back to positive territory, not so much in terms of the size of the demand but in terms of the spending power of part of that demand.

Key public finance figures improved in the first quarter compared to the same period of last year. In fact, General Government net borrowing was equal to 3.5% of GDP in the first quarter of 2018, 0.5 percentage points lower than in the same quarter of 2017. The General Government's primary balance (borrowing net of interest expense) was negative, with an impact on GDP of 0.2% (-1.4% in the first quarter of 2016).  The General Government's current balance was also negative, with an impact on GDP of 1.7% (-0.3% in the first quarter of 2017). The tax burden was 38.2%, down by 0.2 percentage points on the same period of the previous year.
 

The stability programme presented in April by the Government in its Economic and Financial Document was generally endorsed by the European Commission in the Country Specific Recommendations issued at the end of May. According to estimates of the European Commission, in 2018 the deficit is expected to fall considerably to 1.7% of GDP and the public debt/GDP ratio is expected to decrease slightly to 130.7% (source: Spring 2018 Economic Forecast).