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MNI: Italy Growth Continuing, But Slower; Trade War Risks: BOI

MNI (London)
--Italy GDP Seen +1.3% in '18, +1% in '19, +1.2% in '20
--Uncertainty Over Govt Fiscal Policies Poses Volatility Risk
--Italy's Budgetary Adjustment Path Must Continue
By Silvia Marchetti
     ROME (MNI) - Italy's economy will continue to expand over the next three
years though at a slower pace and provided that fiscal targets are met by the
coalition government, the Bank of Italy said in its latest Economic Bulletin,
published Friday.
     The central bank expects GDP to increase by 1.3% this year, 1% next year
and 1.2% in 2020, all in line with projections published in the June report.
     "Economic growth will continue in the next three years, though its pace
will be affected by higher crude oil prices", downside protectionist risks and
unclear fiscal measures, warned the BOI.
     While remaining slightly below the euro area average, Italian inflation
will gradually pick up over the next three years, including the core component,
which should reach 1.5% provided expectations continue to improve and translate
into a gradual upturn in nominal wages.
     However, "this scenario presupposes a favourable global economic
environment, relaxed credit supply conditions and a broadly expansionary
monetary policy stance that incorporates the monetary policy decisions adopted
by the ECB Governing Council," the central bank argued.
     --DOMESTIC ISSUES
     The domestic picture is also incomplete and raises concerns.
     The current scenario, compatible with a gradual reduction in the
debt-to-GDP ratio, only takes into account previously approved budgetary
measures adopted by the previous Democrat-led government, but not measures of
the new  cabinet, which the BOI deems "not yet sufficiently detailed or included
in current legislation".
     The risks to economic activity mostly stem from an accentuation of the
protectionist stance, as repercussions on global demand could arise not only
from the direct impact on trade, but also through lower business confidence and
weaker investment plans.
     "Sudden surges in financial market volatility, connected to a rekindling of
uncertainty about economic policies, could affect the cost of borrowing for
households and firms'" said the BOI.
     In the Italian market, continued favourable financial conditions thus rely
on a credible process for consolidating the public finances and on action to
support long-term growth potential.
     Financial market tensions linked to uncertain government actions remain a
factor of risk, warned the bank. Despite yields falling markedly since the
pre-formation phase of the new government, sovereign spreads on ten-year bonds
are still 111 points higher than in seen mid-May.
--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com
[TOPICS: M$E$$$,M$I$$$,M$X$$$,MC$$$$,MI$$$$,M$$EC$]
MNI London Bureau | +44 203-865-3812 | les.commons@marketnews.com

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