Italy’s macroeconomic outlook Riccardo Barbieri Chief Economist Department of the Treasury Economy and Finance Ministry 23 November 2017
Plan of the presentation 1. Update on business cycle developments and highlights from DBP 2018 2. Official macroeconomic forecast 3. Budget policy for 2018-2020 4. Reform plan and European Commission Recommendations Titolo presentazione Luogo, 21/10/2013 2
1. Italy’s economic recovery is gaining momentum 4 3 2 1 0 % -1 -2 GDP (quarter-on-quarter annualised) -3 -4 GDP (year-on-year) -5 3Q 10 1Q 11 3Q 11 1Q 12 3Q 12 1Q 13 3Q 13 1Q 14 3Q 14 1Q 15 3Q 15 1Q 16 3Q 16 1Q 17 3Q 17 Source: ISTAT 3
GDP data have consistently underestimated the recovery Quarterly real GDP growth (% q/q) Latest official Flash estimate Difference estimate (T+45) 2014 I 0,0 -0,1 0,1 II -0,1 -0,2 0,1 III 0,2 -0,1 0,3 IV 0,1 0,0 0,1 2015 I 0,2 0,3 -0,1 II 0,4 0,2 0,2 III 0,3 0,2 0,1 IV 0,3 0,1 0,2 2016 I 0,3 0,3 0,0 II 0,1 0,0 0,1 III 0,3 0,3 0,0 IV 0,4 0,2 0,2 2017 I 0,5 0,2 0,3 II 0,3 0,4 -0,1 Source: ISTAT (including original data releases) 4
Economic Sentiment on the rise 20 20 Italy Euro area 115 115 10 10 0 105 105 Balances, % Balances, % Index Index 0 -10 95 95 -20 -10 -30 85 85 -20 -40 Industry Consumer Industry Consumer Services ESI (RHS) Services ESI (RHS) -30 75 -50 75 Oct-11 Oct-12 Oct-13 Oct-14 Oct-15 Oct-16 Oct-17 Oct-11 Oct-12 Oct-13 Oct-14 Oct-15 Oct-16 Oct-17 Source: European Commission Source: European Commission 5
Consumers more optimistic about their personal situation 1.0 105 0.5 100 % quarter-on-quarter 0.0 Level 95 -0.5 90 -1.0 85 -1.5 Private consumption Consumer confidence index: personal component (RHS) -2.0 80 07 08 09 10 11 12 13 14 15 16 17 Source: ISTAT 6
Investment indicators point to growth ahead despite Q1 dip 10 30 20 5 10 0 0 % year-on-year -10 -5 Index -20 -10 -30 -40 -15 Gross fixed investment -50 -20 Order books (RHS) -60 Order expectations (RHS) -25 -70 4Q07 4Q08 4Q09 4Q10 4Q11 4Q12 4Q13 4Q14 4Q15 4Q16 4Q17 Note: Order books and order expectations data refer to October 2017. Source: ISTAT 7
Firms’ investment plans for current year point to expansion 65 60 55 50 Diffusion Indices 45 40 35 30 Manufacturing and Services Construction 25 20 Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep-16 Mar-17 Sep-17 Source: Bank of Italy, Survey on Inflation and Growth Expectations (3Q - 2017), October 2017 8
Auto sales remain strong, trucks take a breather after 2016 surge 40 120 New car registrations New commercial vehicles (RHS) 100 30 80 20 60 % year-on-year % year-on-year 10 40 0 20 -10 0 -20 -20 -30 -40 -40 -60 Oct-08 Oct-09 Oct-10 Oct-11 Oct-12 Oct-13 Oct-14 Oct-15 Oct-16 Oct-17 Note: Data for new commercial vehicles include buses and coaches. Source: ACEA 9
Home prices stabilising as property market volumes recover Residential property 140 Number of sales Prices Real prices 130 120 Indices 2010=100 110 100 90 80 70 60 2007 Q1 2008 Q1 2009 Q1 2010 Q1 2011 Q1 2012 Q1 2013 Q1 2014 Q1 2015 Q1 2016 Q1 2017 Q1 Source: Bank of Italy 10
Export growth trending up 20 65 Exports of goods, real % year-on-year, 3-months moving avarage Trade weighted international PMI (RHS) 60 PMI Manufacturing - New export orders (RHS) 15 55 10 Index 50 5 45 0 40 -5 35 Oct-10 Oct-11 Oct-12 Oct-13 Oct-14 Oct-15 Oct-16 Oct-17 Source: MEF calculation based on ISTAT and MARKIT data. 11
Exports more dynamic towards EU countries and US 40 Sep. 2017 - Oct. 2016, cumulative data, China 30 United Germany States Russia 20 % year-on-year 10 Spain Mercosur Austria 0 France -10 OPEC Netherlands United -20 Kingdom Belgium -30 -40 -40 -30 -20 -10 0 10 20 30 40 50 Sep. 2016 - Oct. 2015, cumulative data, % year-on-year Note: The green bubbles represent countries towards Italian exports rose in the range 0.9/22.4 per cent over the 12 months until September 2017; for the red one, the decrease is -1.5 per cent. The size of globes represents the share of a country on Italian exports. Source: ISTAT 12
Current account balance has improved sharply 60 Italy's current account balance 40 20 € bn 0 -20 -40 -60 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 E Source: Bank of Italy. Data for 2017 refer to MEF preliminary estimates based on data through to August. 13
Italy’s share of world exports has stabilised Italy’s share of world exports to main areas of destination 7 EU North America East Asia World 6 5 4 % 3 2 1 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: ICE (computations on IMF-DOTS data). Figures for 2016 are preliminary. 14
% Labour market improving 10 11 12 13 14 5 6 7 8 9 Nov-04 Source: ISTAT Jan-06 Mar-07 Unemployment rate May-08 Jul-09 Sep-10 Nov-11 Jan-13 Mar-14 May-15 Jul-16 Sep-17 absolute values in thousands 22000 22200 22400 22600 22800 23000 23200 23400 Nov-04 Source: ISTAT Jan-06 Mar-07 May-08 Jul-09 Sep-10 Nov-11 Employment Jan-13 Mar-14 May-15 Jul-16 15 Sep-17
Domestic inflation at low levels 6 GDP deflator Wages per-capita (whole economy) 5 4 % year-on-year 3 2 1 0 -1 2Q 07 2Q 08 2Q 09 2Q 10 2Q 11 2Q 12 2Q 13 2Q 14 2Q 15 2Q 16 2Q 17 Source: ISTAT 16
HICP inflation remains low, especially core inflation 5,0 5,0 4,0 4,0 3,0 3,0 % year-on-year % year-on-year 2,0 2,0 1,0 1,0 0,0 0,0 -1,0 -1,0 HICP (LHS) HICP core PPI - consumer goods -2,0 -2,0 Oct-07 Oct-08 Oct-09 Oct-10 Oct-11 Oct-12 Oct-13 Oct-14 Oct-15 Oct-16 Oct-17 Source: ISTAT 17
Growth in bank loans recovering 15 Loans to firms Loans to households 10 % year-on-year 5 0 -5 -10 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 Sep-17 Source: Bank of Italy 18
Lending rates at historical lows 6 6 Euro area Germany Italy Spain France 5 5 4 4 % % 3 3 2 2 1 1 Sep-07 Sep-09 Sep-11 Sep-13 Sep-15 Sep-17 Source: ECB 19
Credit standards for loans to enterprises have eased 0,6 Loans to non-financial corporations-IT Loans to non-financial corporations - EA 0,5 0,4 0,3 Diffusion Index 0,2 0,1 0,0 -0,1 -0,2 -0,3 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Source: Bank of Italy, ECB 20
NPLs as a share of bank loans are falling 20 20 18 18 Non financial corporation Consumer households 16 16 14 14 12 12 % of total loans % of total loans 10 10 8 8 6 6 4 4 2 2 0 0 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 Sep-17 Source: Bank of Italy 21
New non-performing loan rate close to pre-crisis levels 12 Total Households Non financial corporations 10 8 % 6 4 2 0 2Q06 2Q07 2Q08 2Q09 2Q10 2Q11 2Q12 2Q13 2Q14 2Q15 2Q16 2Q17 Source: Bank of Italy 22
The reform of the banking sector Major reforms were introduced in the past two years with the aim of making the Italian banking system more efficient and capable of facing economic, technological and regulatory challenges. Governance (to promote efficiency and recapitalisation): reform of mutual banks reform of cooperative credit banks self-reform of banking foundations NPLs and insolvency procedures (to address deterioration of asset quality): State guarantees (GACS) on the securitisation of non-performing loans Streamlining of insolvency procedures Reduction of credit recovery time 23
Banks’ recapitalisation: impact on the public finances millions of euros Veneto banks Monte Paschi Total Capital contribution 1 4785 5400 10185 Fair value of guarantees 2 400 400 memo items: Guarantees 3 12351 12351 GACS 4 3256 3256 1. Capital injection into Monte Paschi assumes that all conversion rights of retail bondholders will be exercised 2. Fair value of guarantees provided for the liquidation of Veneto banks 3. Maximum level of guarantees provided for the compulsory liquidation of Veneto Banks 4. Amount of Senior A1 notes in Monte Paschi's NPL securitisation covered by the state guarantee scheme Capital contribution, € 10.2bn, will be recorded as government debt. Amount is in line with estimate used in Stability Program (0.6% of GDP) to project 2017 debt/GDP ratio. Fair value of guarantees for the liquidation of Veneto banks will be recorded as deficit. The securitisation of Monte Paschi NPLs will involve the use of GACS for the senior tranche The total amount of guarantees provided in the two operations is thus € 15.5bn. 24
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