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Italy in recession amid sluggish eurozone

Italy in recession amid sluggish eurozone

Italy's economy tipped into recession at the end of last year, according to latest figures.

In the final three months of 2018, the economy shrank by 0.2%, following a 0.1% decline in the third quarter, the Istat statistics office said.
Italian Prime Minister Giuseppe Conte said the contraction was likely to continue into 2019.
Meanwhile, figures from the EU showed economic growth in the 19-country eurozone still languishing.

Growth in the euro area remained at 0.2% in the final quarter of 2018, the same as the previous quarter and in line with analysts' expectations.
The figures, issued by the Eurostat agency, showed that in the 28-nation EU as a whole, fourth-quarter growth was 0.3%.

In contrast to Italy, some other eurozone economies expanded more than expected, with France and Spain posting growth rates of 0.3% and 0.7% quarter-on-quarter respectively.
Italy's statistics office said agriculture, forestry, fishing and industry had all contributed to the economic downturn, while a rise in net exports failed to offset those declines.

Italy's coalition government was forced to revise its expansionary 2019 budget last month after the European Commission raised concerns about the impact on the country's debt levels.
The renewed recession in Italy aggravates the problem the government has with its finances.
The ruling parties' desire to increase spending to meet election campaign commitments led to a stand-off with the European Commission which argued Italy was going to be borrowing too much. Rome pared back its plans and the dispute was resolved.
But the fact that the economy has turned out to be even weaker is bad news for the government finances.

Tax revenue will be hit and that will tend to lead to a bigger financial hole to be filled by borrowing.

Italy's problem is its accumulated debt, which is on one measure the largest in the eurozone.

It would be a huge problem for the rest of the eurozone if Italy were to suffer the kind of debt crisis that Greece and others experienced a few years ago.

That is not a near-term prospect, but Italy's persistently weak economic performance makes it very hard to banish that risk conclusively.
Italy has the biggest government debt in the EU at more than €2.3 trillion ($2.6tn; £2tn). It is also the fourth-largest government debt in the world.

The country's debt burden as a percentage of annual economic activity is second only to Greece in the EU at 132%.

Last week, European Central Bank (ECB) president Mario Draghi said eurozone economic data had been weaker than expected and the risks to growth had increased.

Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, said that the overall eurozone figures "don't look pretty, but have been well telegraphed by the hard data and the financial market horror show in Q4".

"Indeed, it seems to us that markets will be inclined to look at these headline [figures] as good news. They indicate that things probably won't get much worse in the near term - this is a bold assumption, given poor January survey data - and that the ECB will keep rates low for a long time."

European Commission Economic Forecast

Winter 2019 Economic Forecast: growth moderates amid global uncertainties

The European economy is expected to grow for the seventh year in a row in 2019, with expansion forecast in every Member State. The pace of growth overall is projected to moderate compared to the high rates of recent years and the outlook is subject to large uncertainty.

Valdis Dombrovskis, Vice-President for the Euro and Social Dialogue, also in charge of Financial Stability, Financial Services and Capital Markets Union, said: "All EU countries are expected to continue to grow in 2019, which means more jobs and prosperity. Yet our forecast is revised downwards, in particular for the largest euro area economies. This reflects external factors, such as trade tensions and the slowdown in emerging markets, notably in China. Concerns about the sovereign-bank loop and debt sustainability are resurfacing in some euro area countries. The possibility of a disruptive Brexit creates additional uncertainty. Being aware of these mounting risks is half of the job. The other half is choosing the right mix of policies, such as facilitating investment, redoubling efforts to carry out structural reforms and pursuing prudent fiscal policies."

Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs, said: “After its 2017 peak, the EU economy's deceleration is set to continue in 2019, to growth of 1.5%. This slowdown is set to be more pronounced than expected last autumn, especially in the euro area, due to global trade uncertainties and domestic factors in our largest economies. Europe's economic fundamentals remain solid and we continue to see good news particularly on the jobs front. Growth should rebound gradually in the second half of this year and in 2020.”

Economic growth

Economic activity moderated in the second half of last year as global trade growth slowed, uncertainty sapped confidence and output in some Member States was adversely affected by temporary domestic factors, such as disruptions in car production, social tensions and fiscal policy uncertainty. As a result, gross domestic product (GDP) growth in both the euro area and the EU likely slipped to 1.9% in 2018, down from 2.4% in 2017 (Autumn Forecast: 2.1% for EU28 and euro area).

Economic momentum at the start of this year was subdued, but the fundamentals remain sound. Economic growth will continue, albeit more moderately. The European economy is set to continue to benefit from improving labour market conditions, favourable financing conditions and a slightly expansionary fiscal stance. Euro area GDP is now forecast to grow by 1.3% in 2019 and 1.6% in 2020 (Autumn Forecast: 1.9% in 2019; 1.7% in 2020). The EU GDP growth forecast has also been revised down to 1.5% in 2019 and 1.7% in 2020 (Autumn Forecast: 1.9% in 2019; 1.8% in 2020).

Among the larger Member States, downward revisions for growth in 2019 were sizeable for Germany, Italy, and the Netherlands. Many Member States continue to benefit from robust domestic demand, also supported by EU funds.


Consumer price inflation in the euro area fell towards the end of 2018 due to a sharp drop in energy prices and lower food price inflation. Core inflation, which excludes energy and unprocessed food prices, was muted throughout the year, despite faster wage growth. Overall inflation (HICP) averaged 1.7% in 2018, up from 1.5% in 2017. With oil price assumptions for this year and next year now lower than in autumn, euro area inflation is forecast to moderate to 1.4% in 2019 before picking up mildly to 1.5% in 2020. For the EU, inflation is forecast to average 1.6% this year and then pick up to 1.8% in 2020.


A high level of uncertainty surrounds the economic outlook and the projections are subject to downside risks. Trade tensions, which have been weighing on sentiment for some time, have alleviated somewhat but remain a concern. China's economy may be slowing more sharply than anticipated and global financial markets and many emerging markets are vulnerable to abrupt changes in risk sentiment and growth expectations. For the EU, the “Brexit” process remains a source of uncertainty.

For the UK, a purely technical assumption for 2019

In the light of the process of withdrawal of the UK from the EU, projections for 2019 and 2020 are based on a purely technical assumption of status quo in terms of trading patterns between the EU27 and the UK. This is for forecasting purposes only and has no bearing on the process underway in the context of Article 50.


This forecast is based on a set of technical assumptions concerning exchange rates, interest rates and commodity prices with a cut-off date of 25 January 2019. For all other incoming data, this forecast takes into consideration information up until 31 January.

The European Commission publishes two comprehensive forecasts (spring and autumn) and two interim forecasts (winter and summer) each year. The interim forecasts cover annual and quarterly GDP and inflation for the current and following year for all Member States and the euro area, as well as EU aggregates.

The European Commission's next comprehensive forecast will be the Spring 2019 Economic Forecast in May 2019.

Source : European Commission - Press release

Re: German Ifo Business Climate Update

navid110 wrote:
Fri Feb 22, 2019 10:59 pm
navid110 wrote:
Fri Jan 25, 2019 10:59 pm
No Comment

German Ifo Business Climate :thumbdown: Update

Haha oh no, game over! :cry: :lol:
Myfxbook live trading results (new 2019 account coming soon)
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Re: German Ifo Business Climate Update

Jimmy wrote:
Fri Feb 22, 2019 11:12 pm
navid110 wrote:
Fri Feb 22, 2019 10:59 pm

German Ifo Business Climate :thumbdown: Update

Haha oh no, game over! :cry: :lol:
Although EU data is not critical but Eco. data weakening report by report.
Eu Inflation also released and I try to put it in the next post. Inflation lowered to 1.4 from Mid. 2018which record 2.3

EURCAD Technical Analysis: Strong chance of continuation to the upside

EURCAD Technical Analysis: Strong chance of continuation to the upside

  • EURCAD has been in consolidation for the past few days and traders have been waiting for the pair to push higher.
  • The pair began an uptrend in late 2012 with a series of corrections.
  • Despite some drastic falls the pair has not been able to break the Monthly trendline.

Trend: Strongly Bullish

4 Hour chart with major Support and Resistance lines

Monthly chart showing the pair following the bullish trend that began in late 2012

Source: https://forex-station.com/
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Fitch Affirms Italy at 'BBB'; Outlook Negative

Fitch Affirms Italy at 'BBB'; Outlook Negative

Fitch Ratings - Frankfurt am Main - 09 August 2019:

Fitch Ratings has affirmed Italy's Long-Term Foreign-Currency Issuer Default Rating (IDR) at 'BBB' with a Negative Outlook.

Italy's 'BBB' rating and Negative Outlook reflect the extremely high level of general government debt, very low trend GDP growth, policy risk and uncertainty arising from the current political dynamic and associated downside risks to our public debt projections. The relatively high net external debt and still-weak banking sector asset quality also weighs on the rating.

The rating is supported by a diversified, high value-added economy, with GNI per capita, governance and human development indicators much stronger than the peer group medians. Italy also has moderate private sector indebtedness, a sustainable public pension system, relatively favourable average maturity of public debt (6.8 years), a negligible share of foreign currency debt, a current account surplus and a net international investment position close to balance.

The general government deficit was 2.1% of GDP in 2018, the lowest for a decade. Fitch forecasts an unchanged deficit of 2.1% of GDP in 2019, 0.2pp lower than our forecast at the previous review and below the 2.4% expected in the April Stability programme. The better performance reflects higher-than-forecast tax revenues despite the economic weakness. Specifically, an additional EUR2.9 billion stemmed mostly from better-than-expected personal income tax and value added tax revenues, higher receipts from lottery and gambling operations, and the settlement of one large company's past tax liabilities. Social security contributions of EUR0.6 billion and other revenues, including higher dividends from Bank of Italy and Cassa Depositi e Prestiti (EUR 2.7 billion), are also notable. Lower take-up of citizenship income and the "Quota 100" early retirement scheme is expected to yield EUR1.5 billion in expenditure savings.

A decree-law approved by parliament provides for a spending freeze mechanism worth EUR 1.5 billion if the projected savings fail to materialise. This should help ensure that fiscal gains are not spent on other measures for the rest of 2019.

In light of these measures the European Commission concluded in July 2019 that an excessive deficit procedure (EDP) was not warranted. The government also pledged a structural fiscal adjustment in 2020 consistent with the EU's Stability and Growth Pact. In our view the avoidance of the EDP shows that the Italian government remains engaged with the EU's fiscal processes. However, the nature of any fiscal adjustment in 2020 remains unclear, and tensions with the European Commission are likely to resurface, but we believe a future government will be wary of fully disengaging from EU processes, which could risk financial market instability.

Fitch continues to expect moderate fiscal loosening in 2020 and we have kept unchanged our deficit projection at 2.7% of GDP. We assume there will not be an activation of the VAT safeguard hikes (which would account for 1.3% of GDP) and that there is a partial implementation of Lega's flagship 15% 'flat tax' rate, which could be restricted to annual incomes below EUR50,000 at a cost of around 0.6%-0.7% of GDP. We expect this will only partly be offset by savings from the government's "integrated strategy" of a spending review and revision of tax allowances, which will be politically difficult. Our 2020 deficit forecast will likely equate to a small worsening of the structural deficit, compared with the current Stability and Growth Pact target for a 0.6% of GDP improvement, resulting in renewed tensions with the European Commission.

Bond market sentiment has improved towards Italy over the past months. Yields on 10-year Italian government bonds had dropped to 1.4% at end-July from 2.4% at end-May 2019. This also reflects market expectations that policy interest rates will remain low for longer and the possibility that the ECB will resume sovereign bond purchases. Low interest rates and additional quantitative easing by the ECB will support debt burdens in highly indebted sovereigns like Italy, but could also ease pressure on the government to reduce public debt and implement structural reforms.

Fitch forecasts an increase in general government debt to 134.7% of GDP in 2021 from 132.2% in 2018, driven by lower nominal GDP growth, and a 0.7pp weakening in the primary balance from 2018-2021. This compares with the current 'BBB' median of 36% of GDP and would leave Italy as one of the most highly indebted sovereigns we rate, exposed to downside risks and with reduced scope for counter-cyclical fiscal policy. Public debt/GDP increased by 0.8pp in 2018 due to a positive stock flow adjustment of 0.9pp, partly related to debt management operations and a marked rise in Treasury cash reserves; we do not incorporate any further stock-flow adjustments in our forecast. Under our longer-term debt sensitivity analysis, which assumes average GDP growth of 0.5% in 2019-2028 and an average primary surplus of 1.0% of GDP, public debt increases to 138% of GDP in 2028.

Our long-held view is that policy tensions in the coalition government and the potential for early elections add to uncertainty over fiscal and economic policy. At the time of writing, the leader of Lega, Matteo Salvini, has triggered a no-confidence vote in the government and expressed his willingness to hold snap elections. The government is likely to lose the confidence vote, and it would then be for the President of the Republic, Sergio Mattarella, to decide the next steps. Alternative outcomes to a snap election are also possible, and include a caretaker government or a different coalition under the current Parliament.

This week's political developments reinforce our assessment at the previous review that the government was unlikely to see out a full term and there is an increasing risk of an early election from the second half of this year. Should there be an election, we see some moderate upside potential to medium-term debt sustainability in the event that a new government is more stable and a longer planning horizon facilitates some fiscal adjustment, as well as a more predictable and growth-supportive policy mix. In contrast, there are downside risks to the fiscal outlook should a future government opt to disengage from EU fiscal rules and be more willing to risk financial market instability. We continue to believe that the risk of market instability will ultimately act as the main constraint on greater fiscal loosening.

Fitch forecasts GDP growth of 0.1% in 2019, down from 0.9% in 2018, with investment growth slowing to 1.3% from 3.4% last year, and some softening of private consumption (as weaker consumer confidence and moderation in employment and wage growth is only partly offset by implementation of citizenship income). Net trade contributes 0.5pp to our 2019 forecast, partly due to weakening imports (which declined to 1.5% in 1Q19).

We forecast GDP growth of 0.5% in 2020 and 0.4% in 2021, driven by moderate private consumption growth (0.5% on average in 2020-21) and a normalisation of global trade. This would take the five-year average to 0.7%, compared with the 'BBB' historical median of 3.6%, and leave the level of Italy's real GDP still 3.3% below that in 2007. We assess Italy's trend rate of growth at around 0.5%, unchanged since the last review.

The external competitiveness of the Italian economy has so far remained resilient to recent external shocks. The current account surplus was 2.6% of GDP in 2018 and we forecast the surplus to remain above 2% of GDP in 2019-2020, compared with a current 'BBB' median of deficit of 1.9% of GDP. The current account surplus is driven by subdued imports, contained unit labour costs, and a lower oil price. Nevertheless, export volume growth slowed over the last quarters as the Italian manufacturing sector is closely linked to German developments.

The strong export performance and recurrent surpluses in the income account have led to a marked improvement in Italy's net international investment position (NIIP) which was close to balance (- 3.9% of GDP) at end-2018 from a peak of -22.7% of GDP at end-2013. Net external debt (which excludes equity and investment fund shares) declined to 48.7% of GDP from 51.7% in 2017. We forecast some moderation in the size of net portfolio outflows which totalled 5.3% of GDP in 2017 and 6.3% in 2018, and for net external debt/GDP to remain at close to 49% of GDP in 2020-21, high relative to the peer group median of 7% of GDP.

The steady improvement in the banking sector's underlying credit fundamentals and market access for funding has continued in recent months. NPL securitisations and portfolio sales have continued, supporting a fall in the NPL ratio to close to 9% at end-March 2019 from 16% at end-2016, albeit still high compared with similarly rated peers. Profitability has been resilient, helped by lower impairment charges and improved cost efficiency, but in our view remains a weakness, given the lack of pricing discipline and modest credit growth, alongside low interest rates. Banking sector consolidation progressed in 2019 with the integration of over 200 mutual banks into two domestically significant banking groups directly supervised by the ECB, resulting in improved cohesion of, and supervision over, a particularly fragmented segment of the domestic banking sector.


Italy has an ESG Relevance Score of 5 for Political Stability and Rights as World Bank Governance Indicators have the highest weight in Fitch's Sovereign Rating Model (SRM) and is therefore highly relevant to the rating and a key rating driver with a high weight.

Italy has an ESG Relevance Score of 5 for Rule of Law, Institutional and Regulatory Quality and Control of Corruption as World Bank Governance Indicators have the highest weight in the SRM and are therefore highly relevant to the rating and a key rating driver with a high weight.

Italy has an ESG Relevance Score of 4 for Human Rights and Political Freedoms as World Bank Governance Indicators have the highest weight in the SRM and are relevant to the rating and are a rating driver.

Italy has an ESG Relevance Score of 4 for Creditor rights as willingness to service and repay debt is relevant to the rating and is a rating driver.

Fitch's proprietary SRM assigns Italy a score equivalent to a rating of 'A' on the Long-Term Foreign-Currency IDR scale.

Fitch's sovereign rating committee adjusted the output from the SRM to arrive at the final LT FC IDR by applying its QO, relative to peers, as follows:

- Macroeconomic policy and performance: -1 notch, to reflect Italy's very low GDP growth potential.

- Public finances: -1 notch, to reflect very high government debt levels. The SRM is estimated on the basis of a linear approach to government debt/GDP and does not fully capture the risk at high debt levels.

- External finances: -1 notch, to reflect relatively high net external debt, which is not captured in the SRM. The NIIP is close to balance but the large stock of net external debt makes the country vulnerable to shocks, in light of the high degree of political volatility and policy risk.

Fitch's SRM is the agency's proprietary multiple regression rating model that employs 18 variables based on three-year centred averages, including one year of forecasts, to produce a score equivalent to a Long-Term Foreign-Currency IDR. Fitch's QO is a forward-looking qualitative framework designed to allow for adjustment to the SRM output to assign the final rating, reflecting factors within our criteria that are not fully quantifiable and/or not fully reflected in the SRM.

The following factors may, individually or collectively, result in negative rating action:

- Weaker government debt dynamics, for example due to additional fiscal policy loosening and/or weaker GDP growth prospects;

- Political developments negatively affecting economic and fiscal policies and/or outturns; and

- Adverse developments in the banking sector increasing risks to the real economy or public finances.

As the Outlook is Negative, Fitch does not currently anticipate developments with a high likelihood of triggering an upgrade. However, the following factors could, individually or collectively, result in a stabilisation of the Outlook:

- A track record of fiscal policy that supports an improvement in Italy's government debt dynamics;

- A stronger economic recovery and greater confidence in medium-term growth prospects, particularly if supported by the implementation of effective structural reforms and reduction in banking sector risks.

Fitch's long-run debt sustainability calculations assume average GDP growth of 0.5% in 2019-2028, GDP deflator inflation rising to 1.5%. The primary surplus is assumed to be stable at 1% of GDP from 2020 onwards. In light of the persistence of the very low risk-free yields in the Eurozone, we assume the 10-year Italian yield will increase only to 4% by 2025, compared with our previous assumption of 4.75% by end-2025.


Italian PM to resign

Italian Prime Minister Conte announces resignation, bringing Rome closer to a snap election
https://www.cnbc.com/2019/08/20/italian ... signs.html

Italian PM to resign, denounces Salvini for sinking government
https://www.reuters.com/article/us-ital ... SKCN1VA0TE
Italian Prime Minister Giuseppe Conte (R), flanked by Deputy Prime Minister and Interior Minister Matteo Salvini (L), delivers a speech at the Italian Senate, in Rome, on August 20, 2019, as the country faces a political crisis

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