Italy22 May 2012
Along with the rest of the eurozone, the Italian economy continues to suffer from the ongoing sovereign debt crisis and market fears of recession. Exceptionally high public debt burdens and structural impediments to growth have rendered it vulnerable to scrutiny by financial markets. Italian gross domestic product (GDP) declined by 0.7% between the third and fourth quarters of 2011 and cyclical indicators point to a further contraction of economic activity in the first half of 2012.
However, in its Economic Bulletin of April 2012 the Bank of Italy sees some signs of stabilisation and “the qualitative indicators derived from surveys suggest that, although the economic picture is still poor, the cyclical deterioration has moderated. In particular, more favourable assessments of export orders have emerged.”
The Bank reported that difficulties in accessing credit have been countered by the recent European Central Bank (ECB) liquidity injections and, despite tightening of credit supply from banks, the refinancing operations conducted by the ECB should allow credit supply conditions to return to normal in the months to come. Banks' profitability is down, but they have strengthened their capital base and regained access to the market.
Italy has some unique "weapons" in its arsenal to survive the economic storm and possesses great flair in serving, for example, the SME market. This report examines these and assesses the probable way forward for Europe's fourth largest sovereign lessor.