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Italy Country Risk Report Q3 2018

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 2016
TABLE: TOP 5 GOODS IMPORTS IN 2016
TABLE: CURRENT ACCOUNT BALANCE FORECASTS
Monetary Policy
ECB Plays Waiting Game
Fiscal 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 Politics
Populist 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 States
TABLE: LABOUR MARKET RISK INDEX
TABLE: LOGISTICS RISK INDEX
TABLE: 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

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