The Italian central bank has said it expects a slowdown in the economy, revising down its prediction for gross domestic product (GDP) for 2013 to -1.9 per cent from -1.0 per cent, reflecting weaker than expected productivity in the first half of the year.
The Banca d’Italia points to “a slowdown in world trade and persistent strains in the credit market” as factors delaying exit from the recession. However, it expects GDP to grow next year by 0.7 per cent as foreign trade and productive investment resumes (the latter likely to be assisted when the payment of general government commercial debts is unfrozen).
The bank says its predictions of both a slowdown and a recovery are subject to great uncertainty. Foreign demand could be weaker than expected if growth in emerging economies slows further and cyclical weakness in Europe persists.
Our forecasting scenario also depends on the full implementation and effectiveness of economic policy measures. The provision for unfreezing general government commercial payments could be less effective than expected if the payment schedules are not met or if firms, given ample spare capacity and slack demand, set a substantial portion of the funds aside for precautionary purposes.
Finally, the timing and strength of the recovery could be jeopardized by an increase in spreads on Italian government securities, which owing to the size of the public debt and the poor prospects for economic growth remain sensitive to variations in investor confidence and the assessments of analysts. Achieving the fiscal adjustment objectives is a necessary condition for the containment of risk premiums, which must also be shielded from the possible adverse effects of uncertainties about the domestic situation. An increase in spreads would have repercussions on banks' funding and hence on the availability and cost of credit to firms and households.