PARIS (MNI) – Italy’s economy will shrink this year and will grow
again in 2013 only if Italian bond spreads narrow sharply and debt
market tensions recede, the Bank of Italy said in its January economic
bulletin published Tuesday.
The central bank presented two macroeconomic scenarios, one
favorable and the other decidedly less so. In the first scenario, the
gap between Italian 10-year bonds and their German counterparts would
close to around 200 basis points from the 500-point level around which
they have fluctuated for the past several months. Stress in bond markets
would ease. In the second scenario, the spreads would stay around their
current level and bond market tensions would remain elevated.
In the second, less favorable scenario, Italy’s GDP would contract
by 1.5% this year and then stagnate in 2013, the Bank of Italy
projected. In the first scenario, the economy would still shrink in 2012
by 1.2%, but it would return to growth towards the end of this year and
would expand by 0.8% in 2013.
The central bank also estimated that the Italian economy shrank in
the fourth quarter, though it did not give a figure. In the third
quarter, Italy’s GDP dropped by 0.2%. “The weakness of domestic demand
is confirmed by recent data and business opinion surveys,” the bank
noted.
The Bank of Italy cautioned that “uncertainty remains elevated,”
and warned “there is a risk that a deterioration of [investor]
expectations, which results in a further tightening of the sovereign
debt markets and credit, could lead to a more pronounced decline.”
By the same token, certain structural reforms currently under
discussion and not baked into the forecasts — if “well designed and
promptly implemented” — could influence positively market expectations
and the spending decisions of families and businesses, not only over the
longer term but also this year and next,” the bank said.
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