Market Research Logo

Italy Country Risk Report Q4 2018

Italy Country Risk Report Q4 2018

Key View:

Italian politics is set for a large upheaval, with the country led by the populist Five Star Movement (M5S) and 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 comparable 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 economic 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, European Central Bank (ECB)'s asset purchase programme (QE) will end in December 2018.

Major Forecast Changes

We now see real GDP growth coming in at 1.2% in 2018, 1.1% in 2019 and 1.0% in 2020, from 1.2%, 1.0% and 0.8% previously, on the back of our expectation for government spending to contribute more substantially to growth.

Budget proposals from both parties have rightly spooked investors, and suggests a wider fiscal deficit. This means we now forecast the budget deficit to reach 3.0% of GDP in 2019 and 2.9% in 2020, from 2.8% and 2.9% previously for 2019 and 2020.

Key Risks

The recent rise in bond yields highlights underlying government debt and political risk in the eurozone. While a region-wide downturn is not our core scenario, there is a growing possibility of a substantial drop in growth and rise in risk premiums.

Although we expect the ECB to take a cautious and gradual approach to tightening, in part due to vulnerabilities of highly indebted eurozone countries such as Italy, it is still uncertain how bond markets will react. With low borrowing costs a crucial anchor of stability, even a modest rise in interest rates may prove problematic.


Executive Summary
Core Views
Major Forecast Changes
Key Risks
Country Risk Summary
Economic Risk Index
Political Risk Index
SWOT
Economic – SWOT Analysis
Political – SWOT Analysis
Economic Outlook
Economic Growth Outlook
Populist Government No Panacea For Italian Economy
GDP By Expenditure Outlook
TABLEL: GDP GROWTH FORECASTS
TABLE: PRIVATE CONSUMPTION FORECASTS
TABLE: GOVERNMENT CONSUMPTION FORECASTS
TABLE: FIXED INVESTMENT FORECASTS
TABLE: NET EXPORTS FORECASTS
External Trade And Investment Outlook
Italian Exports Running Out Of Steam
Outlook On External Position
TABLE: CAPITAL & FINANCIAL ACCOUNT BALANCE
TABLE: TOP 5 GOODS EXPORTS IN 2016
TABLE: TOP 5 GOODS IMPORTS IN 2016
TABLE: CURRENT ACCOUNT BALANCE FORECASTS
Monetary Policy
Eurozone Inflation Will Struggle To Stay At 2.0% ECB Target
Fiscal Policy And Public Debt Outlook
Italian Deficits To Remain Moderate Despite Campaign Rhetoric
Italy Country Risk Q4 2018ContentsCurrency Forecast
EUR: Gradual Appreciation Amidst End Of QE
TABLE: EUROZONE CURRENCY FORECAST
10-Year Forecast
The Italian Economy To 2027
Major Macroeconomic Challenges Ahead
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Political Outlook
Long-Term Political Outlook
Fiscal Adjustments And Demographic Ageing To Dominate Italy's Long-Term Political Outlook
TABLE: POLITICAL OVERVIEW
Global Macro Outlook
Strong Growth, But Greater Headwinds Too
TABLE: GLOBAL MACROECONOMIC FORECASTS
TABLE: DEVELOPED STATES, REAL GDP GROWTH, % y-o-y
TABLE: EMERGING MARKETS, REAL GDP GROWTH, % y-o-y
Index Tables
TABLE: ITALY – MACROECONOMIC DATA AND FORECASTS

Download our eBook: How to Succeed Using Market Research

Learn how to effectively navigate the market research process to help guide your organization on the journey to success.

Download eBook

Share this report