Italian election: Not that threatening anymore

Exactly fifteen months after the rejection of the constitutional reform in the referendum held in December 2016, Italy will face general election on March 4 to renew both chambers of the national parliament.

Authors: Luca Colussa / Thomas Hempell / Michele Morganti / Florian Späte

Focal Point 16/02/2018

Highlights:

Opinion polls for Italy’s general election (Mar 4) leave the door open for a center-right majority, but a hung parliament is still our base case. An unprecedented very large grand coalition may prove necessary to overcome the impasse.
Encouragingly, the threat of an Italexit referendum is not on the agenda anymore as Eurosceptic parties have softened their stance. The main risk is posed by a deviation from fiscal discipline and stalling structural reforms.
While we advise some caution regarding Italian BTPs and the EUR/USD in the run-up to the elections, the immediate reaction to the outcome is expected to be muted. The benign economic environment is likely to pave the way to slightly lower BTP premiums and an appreciation of the single currency over the course of the year.
Italian equities kept outperforming year-to-date, thanks to robust earnings growth, progress in banks’ restructuring and fiscally incentivized inflows. Current market multiples look dearer and we suggest a more cautious approach.

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Italian election: Not that threatening anymore

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