Italy Country Risk Report Q3 2018
Italian politics is set for a large upheaval, with the country set to be led by the populist Five Star Movement (M5S) and Northern League (LN), representing the first time that a major European power has been ruled by a populist force since the EU's inception.
The recent growth uptick in Italy will prove to be cyclical. Growth will slow to sluggish trend levels over the next few years.
The Italian export machine will continue underperforming compa-rable eurozone peers in the coming years, due to long-standing competitiveness issues and the country's rigid labour market.
The likelihood of an incoming populist administration bodes ill for Italy's fiscal position, with the deficit set to widen considerably in the coming years. Italian debt sustainability poses one of the most significant systemic threats to the macroeconomic stability of the eurozone.
Monetary policy will remain loose in the eurozone in 2018 and 2019, as core inflationary pressures fail to pick up substantially and eco-nomic data releases increasingly point towards a growth slowdown.
While interest rates are unlikely to be hiked until the final quarter of 2019 at the earliest, there is a growing chance that the European Central Bank (ECB)'s asset purchase programme (QE) is extended beyond its notional September 2018 deadline.
Executive Summary Core Views Major Forecast Changes Key Risks Chapter 1: Economic Outlook SWOT Analysis BMI Economic Risk Index Economic Growth Outlook Growth Slowdown Least Of Italy's Worries GDP By Expenditure Outlook TABLE: GDP GROWTH FORECASTS TABLE: PRIVATE CONSUMPTION FORECASTS TABLE: GOVERNMENT CONSUMPTION FORECASTS TABLE: FIXED INVESTMENT FORECASTS TABLE: NET EXPORTS FORECASTS External Trade And Investment Outlook No Closer To Solving Productivity Puzzle Outlook On External Position TABLE: CAPITAL AND FINANCIAL ACCOUNT BALANCE TABLE: TOP 5 GOODS EXPORTS IN 2016TABLE: TOP 5 GOODS IMPORTS IN 2016 TABLE: CURRENT ACCOUNT BALANCE FORECASTS Monetary Policy ECB Plays Waiting GameFiscal Policy And Public Debt Outlook Big Question Marks Over Debt Sustainability Currency Forecast EUR: Near-Term Strength To Give Way Gradually TABLE: BMI EUROZONE CURRENCY FORECAST Chapter 2: 10-Year Forecast The Italian Economy To 2027 Major Macroeconomic Challenges Ahead TABLE: LONG-TERM MACROECONOMIC FORECASTS Chapter 3: Political Outlook SWOT Analysis BMI Political Risk Index Domestic PoliticsPopulist Government Would Create Political Earthquake Foreign Policy I Social Democratic Party Decline: Short-Term Blip Or A Change In Politics? Foreign Policy II EU/US Trade Dispute: Three Scenarios Chapter 4: Operational Risk Developed StatesTABLE: LABOUR MARKET RISK INDEX TABLE: LOGISTICS RISK INDEXTABLE: CRIME AND SECURITY RISK INDEX TABLE: TRADE AND INVESTMENT RISK INDEX Chapter 5: BMI Global Macro Outlook Key Divergences Emerging In World Economy TABLE: GLOBAL MACROECONOMIC FORECASTS TABLE: DEVELOPED STATES – REAL GDP GROWTH, % y-o-y TABLE: EMERGING MARKETS – REAL GDP GROWTH, % y-o-y TABLE: ITALY – MACROECONOMIC DATA AND FORECASTS