The Italian economy is still in difficulty, but the public debt remains sustainable and – as demonstrated by the ECB stress tests – the banking system is solid, even if the credit crunch for businesses will continue in 2015. As for the Eurozone, the risks are growing related to stagnation and low inflation. These are the main considerations that emerge from the Bank of Italy's report on financial stability.
SUSTAINABLE DEBT
"The continuation of the economic difficulties, exceptional in terms of duration and depth, and the need to avoid a recessionary spiral in demand have led the government to review the time profile of the rebalancing of public finances", postponing the balance to 2017, recalls Bankitalia : “Looking ahead, the trend in the main expenditure items contributes to debt sustainability, which remains contained; the speed of adjustment of the ratio between public debt and GDP will depend above all on the rate of growth of nominal product”.
SOLID BANKS, BUT CREDIT CRUNCH AGAIN IN 2015
On the side of credit institutions, according to Palazzo Koch, the results of the stress tests "show an overall stability of the balance sheets of the banks involved in the exercise, despite the strong tensions to which they have been subjected in recent years". In the first nine months of this year, Italian banks sold "performing loans for almost 3 billion euro through assignments or securitisations", the text continues.
Again on the lending front, the contraction eases but those "to non-financial companies are expected to continue to decrease in 2015 as well - continues the report -, albeit with decreasing intensity", so much so that they could resume "growing at the end of 2015". The contraction of mortgages to families "should instead stop already in the first quarter of next year".
SOLID FAMILIES, SMALL BUSINESSES MORE AT RISK
In general, the central bank underlines that the financial conditions of Italian households "are solid", while small companies, "on average less capitalized, remain more exposed to the risks deriving from the economic situation and from difficulties in accessing credit. In the presence of a weak trend in income, the modest recovery in household consumption was matched by a drop in savings. Financial wealth increased due to the increase in the prices of the securities in the portfolio. Low interest rates help keep the vulnerability of indebted households contained and the share of financially fragile households would grow to a limited extent even in the face of severe macroeconomic shocks and rate hikes”.
The continuation of the weakness of the economy – warns Via Nazionale – constitutes “the main risk factor for businesses. A gradual rebalancing of the financial structure is underway: debt is being reduced and recourse to the market is increasing. Signs of improvement in economic conditions have emerged among the largest companies and among those more oriented towards foreign markets".
EUROZONE IN DANGER: STAGNATION AND LOW INFLATION
Also weighing on Italy is the general trend in Euroland, which fluctuates between flickering growth and the specter of deflation. In the Eurozone, “the continuation of the phase of stagnation would have negative repercussions on the financial system and public finances – concludes Bankitalia -. The risks to financial stability arising from the weakening of growth and persistently low levels of inflation are increasing. In this context, excessively low inflation values make the process of debt reabsorption, public and private, more difficult and imply a tightening of monetary conditions, with negative effects on consumption and investments”.
