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Italy Country Risk Report Q1 2016

  • December 2015
  • -
  • Business Monitor International
  • -
  • 45 pages

Core Views

Real GDP growth will come in at 1.2% in 2016, the strongest outturnsince 2010. European Central Bank monetary stimulus, an easingfiscal drag, cheaper oil prices and a weakening euro will be tailwindsfor regional and domestic growth in the coming quarters.Domestic demand will drive growth in the coming years. This willensure a steady narrowing of the current account surplus, which weforecast to have peaked in 2015.We view positively the urgent structural reform agenda of PrimeMinister Matteo Renzi, and note that promising progress has beenmade so far. Internal divisions and falling popular support for theruling party are the most prominent risk to the reform agenda atpresent.A failure to follow through on the structural reform agenda will imperilItaly's long-term growth trajectory, and raises the risks that the publicsector debt burden will become unsustainable.Even if reforms aimed at addressing Italy's decline in productivitygrowth and external competitiveness are passed, an ageing demographicprofile will make debt consolidation efforts over the longterm exceedingly difficult.Major Forecast ChangesNo major forecast changes

Table Of Contents

Italy Country Risk Report Q1 2016
Executive Summary 5
Core Views5
Major Forecast Changes5
Key Risks 5
Chapter 1: Political Outlook 7
SWOT Analysis 7
BMI Political Risk Index 7
Domestic Politics 8
Reform Agenda On Track8
Public support for Prime Minister Matteo Renzi's government will receive a boost from pro-growth fiscal policy and rising employment
levels, which will arrest the recent surge in support for anti-establishment parties With the structural reform agenda broadly on track,
new elections are likely to be called if Senate reform is completed in late 2016 or early 2017
TABLE: POLITICAL OVERVIEW8
Long-Term Political Outlook 10
Fiscal Rebalancing To Weigh On Social Cohesion10
Regardless of subsequent government's ideological leanings, Italian policymakers will be constrained by Italy's massive public debt load
and will be forced to enact unpopular measures over the next decade This will limit the government's ability to tackle poverty and social
discontent, with the north-south socio-economic divide widening We also expect Italy's regional and global standing to decline, and
finally, we see populist and xenophobic parties gaining momentum over the coming years
Chapter 2: Economic Outlook 13
SWOT Analysis 13
BMI Economic Risk Index 13
Economic Growth Outlook 14
Recovery Gaining Traction In 201614
Italian real GDP growth will accelerate to 12% in 2016, from an estimated 08% in 2015, driven by stronger domestic demand While
exports will accelerate in line with improving demand from the eurozone and other developed state trading partners, net trade will
subtract from growth and weak external competitiveness remains a key drag on the medium-term outlook
GDP By Expenditure Outlook 16
TABLE: GDP GROWTH FORECASTS16
TABLE: PRIVATE CONSUMPTION FORECASTS16
TABLE: GOVERNMENT CONSUMPTION FORECASTS17
TABLE: FIXED INVESTMENT FORECASTS17
TABLE: NET EXPORTS FORECASTS17
Fiscal Policy And Public Debt Outlook 18
Public Debt To Fall In 2016 Despite Pro-Growth Fiscal Stance18
Consolidation of Italy's budget deficit will be minimal in the coming years on the back of a waning commitment to austerity, although
there will be modest reduction in the public debt ratio due to accelerating nominal growth, record low borrowing costs and persistent
primary surpluses
Structural Fiscal Position 20
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES20
External Trade and Investment Outlook 22
Current Account Surplus Has Peaked22
The shape of growth in Italy will become increasingly tilted towards domestic demand in the coming quarters, resulting in a narrowing
of the current account surplus from its 2015 peak of an estimated 21% of GDP Subdued oil prices, improving eurozone demand and a
more competitive exchange rate will help ensure the downward adjustment is slow, with the current account surplus forecast to remain
elevated relative to previous years at 19% of GDP in 2016
Outlook On External Position23
TABLE: CURRENT ACCOUNT 24
TABLE: TOP 5 GOODS IMPORTS25
TABLE: CAPITAL and FINANCIAL ACCOUNT BALANCE25
TABLE: TOP 5 GOODS EXPORTS25
Chapter 3: 10-Year Forecast27
The Italian Economy To 202427
Major Macroeconomic Challenges Ahead27
We believe that the Italian economy will continue to face a very modest rate of growth over the longer term, weighed do wn by lower credit availability, a weaker external environment, and waning global competitiveness We also warn that major challenges, such as the government debt load, a deteriorating demographic profile, structural decline in productivity and potential political instability, pose threats to longer-term economic prosperity
TABLE: LONG-TERM MACROECONOMIC FORECASTS27
Chapter 4: Operational Risk29
SWOT Analysis29
Operational Risk Index29
Operational Risk30
TABLE: DEVELOPED STATES - LABOUR MARKET RISK30
TABLE: DEVELOPED STATES - LOGISTICS RISK33
TABLE: DEVELOPED STATES - CRIME AND SECURITY RISK36
TABLE: DEVELOPED STATES - TRADE AND INVESTMENT RISK39
Chapter 5: BMI Global Macro Outlook43
Global Outlook43
Emerging Markets Bending, Not Breaking43
TABLE: GLOBAL ASSUMPTIONS43
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %44
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %44
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %45

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