«GDP slows down, families more vulnerable, inflation risks remain»- Corriere.it

High price pressure and the slowdown in the global and European economy continue to pose a high risk to Italy’s financial stability. This is what the Bank of Italy underlines in its report on Financial Stability 2023 according to which persistent geopolitical instability also weighs on the other countries in the euro area. What if public finance conditions improved in 2022with the decrease, in relation to GDP, of both net borrowing and debt (the Def expects the reduction to continue in the coming years), Italian households, on the other hand, are more vulnerable, even if less indebted than the euro area average. The deterioration of the economic situation – explains Bankitalia – has a moderate impact on the risks associated with the financial situation of households. Liquidity remains high, but in real terms disposable income has decreased due to inflation. The increase in interest rates is being reflected in the average cost of outstanding loans and the share of financially vulnerable households could rise this year. Relative to income, however, debt remains much lower than the euro area average.

The quality of corporate credit worsens

On the corporate side, the quality of their credit is still at historically high levels, but is showing the first signs of deterioration, particularly in the manufacturing and construction sectors. Also in this case, the financial situation and the vulnerability of companies are affected by the worsening of macroeconomic forecasts and the increase in interest rates. With largely unchanged demand, growth in corporate loans gradually stalled in 2022 and is now in negative territory. However, the decline only affected the riskier companies and, among these, especially the smaller ones. recourse to the bond market also slowed down. High inflation and the rapid rise in the risk-free interest rate curve had an impact on the average solvency index of Italian companies, which rose from 257 to 249 per cent between June and December 2022, remaining however at high levels , close to the European average (261% in September 2022). According to the Report, the decline was driven by the increase in the capital requirement, attributable to the increased exposure to interest rate risks and early termination of life contracts. According to IVASS simulations, which use scenarios in line with the shocks of the banking stress tests currently conducted by the European Banking Authority and the ECB, further increases in the interest rate curve could lead to an average drop in own funds of 7% for the life sector .

Condition of the banks good: the impact of the crisis limited

On the whole, however, the conditions of the Italian banking system are good. According to the Financial Stability Report, asset quality shows no signs of worsening and profitability has improved, favored by the increase in the interest margin. Pur in the presence of a decline in customer deposits, the liquidity profile remains balanced. According to Via Nazionale, the main sources of vulnerability for the banking system continue to derive from the weak macroeconomic prospects and the uncertainty of the international geopolitical situation, aggravated by the persistence of the conflict in Ukraine. The direct impact of the recent tensions on the international banking markets following the crisis of some intermediaries in the United States and Switzerland appears limited. However, the possible consequences associated with the degree of dependence on less stable sources of funding and with the significance of potential losses on the securities portfolio remain the object of attention.

Global growth is slowing, but there are signs of improvement

Globally, growth is slowing but less than expected and signs of improvement are emerging. In the first quarter of the year – explains Bankitalia – the phase of weakness of the world economy continued, but signs of improvement are emerging. Growth estimates for 2023 continue to foreshadow a marked slowdown, but less marked than last fall’s forecast. The economic cycle is affected by still high inflationary pressures, the related rise in interest rates and geopolitical tensions.