- We expect around zero growth this year, as activity will be dragged by a poor H1. Bottoming world trade and a limited boost from looser fiscal policy should prop up growth in the final months of the year. Global and domestic political uncertainty tilt risks to the downside.
- The government’s decision to trim outlays convinced the Commission to stop the Excessive Deficit Procedure. Uncertainty remains high on the 2020 budget given the envisaged large increases in expenditure. Containing deficit at below 3% of GDP is possible, but would require a strong political commitment.
- Yet, supported by looming additional ECB action, BTPs have more scope to outperform. The 2020 budget remains a concern medium term, but the real obstacle to considerably tighter spreads remains Italy’s long run debt sustainability.
- The banking sector is holding better after the BTP spread decline, but shows a premium around 5% versus EU banks while the earnings trend remains weaker. We are neutral on the Italian banks versus the MSCI Europe.
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