REPEAT: MNI: Italy Inward Investment Shows No Vote Unease: BOI

Repeats Story Initially Transmitted at 12:14 GMT Jan 23/07:14 EST Jan 23

--Italy Recovery Becoming Self-Sustaining, Helped By Consumption, Investment

By Silvia Marchetti

     ROME (MNI) - The increased purchases of Italian securities by foreign

investors underlines an absence of significant election-related market unease, a

Bank of Italy source told MNI in an exclusive interview.

     Italy's vote was not currently being perceived as a "destabilising,

worrying factor", the source noted, though much will depend on how effective the

future government is in pursuing pro-investment measures and hitting debt

reduction targets.

     The boost in market confidence and continued foreign capital inflows

underlines that there are no signs of risks related to the uncertainty around

the outcome of the upcoming election, the source said.

     Expected for much of 2017, national elections were finally called by

President Sergio Mattarella in late December and will take place on March 4. 

     According to the central bank's recent Economic Bulletin, 2017 saw

foreigners' net purchases of Italian portfolio securities reach a total E25.5

billion, with E6.4 billion in public sector securities.

     "It should be noted that last year foreign investors showed interest not

just in Italian public sector securities but also in those issued by the private

sector," the source told MNI.

     Private investment focused mainly on banks' shares and bonds, partly in

connection with the recent recapitalisation of some major Italian banks that are

contributing to strengthen Italy's financial sector.

     --BTP/BUND SPREAD

     The spread between German and Italian government bonds remains relatively

narrow, another good sign of investor ease, according to the source.

     The overall upbeat sentiment is in part attributable to Italy's continued

economic recovery and the favourable reaction of market participants to the

European Central Bank's announced recalibration of monetary policy, the BOI

source added.

     Last week, the Bank of Italy upped its GDP forecasts to 1.4% this year from

a previous 1.3%, and to 1.2% in 2019 and 2020. All forecasts are more favourable

than those recently published by the Commission (1.3%), but in line the the

latest IMF update and just below those of the OECD (1.5%).

     Italy's longer-term rosier economic outlook reflects a significant change

in what now drives the country's growth rates.

     --SELF-SUSTAINING GROWTH

     "The good news is that a large portion of consolidated growth this year

will be self-sustained, meaning it will only be in part supported by a mix of

accommodative monetary policy at central level and expansive economic policies

at government level," said the source.

     According to the bank's estimates, monetary policy measures across the bloc

will help sustain Italy's growth by a little under 0.5% per year in the two

years  2018 and 2019, while the performance of the public finances is expected

to help boost output by around 0.2% both this year and the next.

     "So we have a total of just 0.7% external support now. Last year this

portion was higher, around 1%," said the source, arguing that output continues

to benefit from the support of expansionary economic policies, albeit to a

relatively smaller degree.

     On the one hand, this reflects market expectations of a gradual withdrawal

of monetary stimulus. On the other, it shows the growing autonomous support to

domestic demand originating from the brighter outlook for household disposable

income and firms' higher investment rates.

     The source stressed that the ECB's current monetary policies are "necessary

and proof is, these measures are bearing fruit", warning against an abrupt

unwind of monetary policy.

     "The eventual normalisation process must be gradual and prudent,

accompanied by patience in monetary strategy," he said.

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com