Bank of Italy: slows the global economy, the prices of energy and raw materials weigh

The global economy continues to benefit from the effects of the vaccination campaign and the expansionary policies of the monetary and fiscal authorities but, in recent months, signs of a slowdown have emerged. The rigidity of supply, coupled with the increase in the price of raw materials and energy products, are causing more persistent than expected price pressures. This is what is stated in the Financial Stability Report of the Bank of Italy. On the basis of what is currently assessable, the institute of via Nazionale indicates, the effects on long-term inflation expectations have so far been minor. On the financial markets, the sovereign spreads of some euro area countries recorded a marked increase between the end of October and the beginning of November in connection with fears of a possible reduction in monetary accommodation. Italy – In our country, explain from via Nazionale, the risks to financial stability are moderate and medium-term vulnerabilities persist, linked above all with the possibility that the currently solid economic growth will lose intensity. These vulnerabilities can be addressed through an effective implementation of the NRP, which also ensures a path of significant and lasting reduction in the ratio of public debt to GDP. keep financing conditions on the markets relaxed, including in the sector of government bonds. Spreads on private bonds remain at historically low levels, both in the investment grade and high yield segments. The gradual reduction in corporate insolvency rates, made possible by the good performance of the economy, mitigates the risk of sharp falls in bond prices. Households and businesses – The cyclical improvement and support measures have resulted in an overall growth in savings and financial wealth, although not homogeneous among the various categories of households and the risks associated with the financial situation remain limited overall. The debt of households, continues the institute of via Nazionale, is in moderate increase, but remains low in international comparison. The ability to repay loans is good, also thanks to low interest rates and the share of debt held by financially vulnerable households is relatively low. As for businesses, the recovery in profitability, the abundant liquidity accumulated during the pandemic and the favorable conditions for access to credit contribute to a significant improvement in balance sheets. Thanks to the solid recovery of the economy, the gradual reduction of public support measures is taking place without inducing tensions. This was supported by the Bank of Italy in its Financial Stability Report. Risks, the document indicates, could derive from a less favorable evolution of the economic situation and profitability of companies than is currently expected. Furthermore, continues the Bank of Italy, in the first half of 2021 the financial leverage, measured by the ratio between financial debts and the sum of the same with the shareholders’ equity, decreased slightly, to 39.9%, however it remains higher. by 1.3 percentage points since the start of the pandemic. In the main European economies, the trend in leverage since the end of 2019 has been heterogeneous: in all countries, debt has contributed to its growth; the contribution of the market value of the assets was instead differentiated. Looking ahead, the Italian companies interviewed in the economic survey expect a reduction in leverage by the end of the year. Banks – The measures put in place by the government to support households and businesses and the economic recovery have helped to mitigate the effects of the pandemic on the quality of bank assets. The deterioration rate of loans is stable at historically low levels and the disposals of non-performing loans continue. Nonetheless, the via Nazionale institute warns, performing loans subject to concession measures (forborne exposures) increased, especially among borrowers who benefited from moratoriums. According to the Bank of Italy, it is “important that banks pay particular attention to assessing the repayment capacity of debtors and the consequent provisioning decisions”. Looking ahead, the document continues, a vulnerability factor for intermediaries may derive from the growing digitization of financial services and the greater use of outsourcing of activities, which increase exposure to cyber risks and those for business continuity. “The awareness of these new risks on the part of intermediaries as well as their integration into the governance and control systems are fundamental for an effective law enforcement action”, explain from via Nazionale. In terms of bank profitability, this improved significantly in the first half of the year, mainly due to the decline in loan loss provisions. Other contributing factors, such as trading income, are of a temporary nature and may not extend to the second half of 2021. Furthermore, we read, the capitalization has been slightly reduced, especially due to the loss of the transitional prudential treatment associated with the ” adoption of the IFRS 9 accounting principle. According to via Nazionale, the capitalization should be slightly affected by the resumption of the payment of dividends following the expiry of the recommendations issued by the supervisors, who had placed limits on their distribution during the health emergency. Insurance – The insurance industry has returned to pre-pandemic conditions. In the first half of 2021, the average solvency ratio of companies increased further. Profitability and premium income increased thanks to the good performance of the life sector. The sector, specifies the institute in via Nazionale, has recovered the previous conditions “in terms of capitalization, profitability and premium income”.