Italy Country Risk Report Q3 2016 - New Market Report

Italy will return to modest growth in 2014 and 2015, although a weak labour market and ongoing contraction in credit growth will continue to impede a more robust recovery.

We view positively the urgent structural reform agenda of new Prime Minister Matteo Renzi. However, we remain sceptical that he will be able to avoid the chronic instability, political infighting and rigid vested interests that that have in the past impeded reform efforts.

Lack of significant structural reform in previous years seriously jeopardises Italy's long-term growth trajectory, and raises the risks that the public sector debt burden will become unsustainable.

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Even if reforms aimed at addressing Italy's decline in productivity growth and external competitiveness are passed, an ageing demographic profile will make debt consolidation efforts over the long term exceedingly difficult.

Major Forecast Changes

No major forecast changes

Key Risks To Outlook

If Renzi's reform programme succeeds at rapidly pushing through key reforms in 2014 and 2015, we see upside risks to our growth forecasts over the medium and long term. Although these structural reforms would likely take several years before their full effect on the real economy is felt, immediate positive benefits could come in the form of rising investor and business confidence, lowering credit spreads and encouraging domestic firms to expand and invest.

The Italian banking sector remains a key downside risk ahead of the European Central Bank's Asset Quality Review. Any major capital shortfalls uncovered could reignite the negative feedback loop between sovereign and banking sector risk, leading to another rapid loss of investor confidence in Italian assets. This would significant impede the government efforts to push through reform while staying within the European Union's budget deficit limits.

Assess your risk exposure in Italy with our 100% independent forecasts assessing the pace and stability of this key market. Backed by trusted data from BMI Research's 52 million data point economic forecast model, this report will allow you to measure political, economic, business environment and operational risks in Italy with confidence.

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