A little good news for everyone: in the first quarter of the year there is a slight recovery of economic activity in Italy. In the same period, inflation declined (to 8.2% in March), but the underlying component grew, still feeling the effects of the transmission to final prices of higher costs associated with energy shocks. Additionally, the rise in official rates continues to be transmitted to the cost of credit and to weigh on loans to individuals and companies. These are the main data that emerge from the monthly bulletin of the Bank of Italy. «At the end of 2022 – we read – the expansion phase of the Italian economy was interrupted, mainly due to the contraction of household expenses. According to the available indicators, in the first quarter of this year, the evolution of GDP would have returned slightly positive, benefiting from the fall in energy prices and the easing of bottlenecks in supply chains». As for inflation, after reaching a peak at the end of last year, consumer prices “began to fall, reflecting the sharp drop in the energy component, while the underlying one increased”. “During the first quarter, harmonized consumer price inflation gradually eased to 8.2 percent in March, from a peak of 12.6 percent reached in the autumn. The fall reflected the attenuation of the energy component. As in the euro zone as a whole, core inflation increased on average in the quarter (although it fell to 5.3 percent in March); continues to be driven by the pass-through of past increases in energy prices to production costs, which determine just over half of them», explains Bankitalia.
The bulletin also analyzes the impacts of central bank decisions on rates. “The increase in official rates continues to be transferred to the cost of credit. Bank loans contracted between November and February, mainly to companies, due to weak demand and stricter supply criteria», continues the bulletin. In particular «the average interest rate on new bank loans to companies – it is explained – rose by around 60 basis points compared to November (to 3.6 percent in February). The cost of new loans to households for house purchase rose to 3.8 per cent (from 3.1 per cent), reflecting the rise in rates on both variable rate mortgages (to 3.7 per cent) and fixed rate mortgages (in 3 .8 percent percent)».
With regard to banks, however, the Bank of Italy recalls how in March “the difficulties of some intermediaries in the United States and Switzerland led to downward pressure on stock prices, especially in the financial sector. Eurozone banks, including the Italian ones, are in a much better situation than seen in previous crisis episodes, thanks to their high capitalization, abundant liquidity and strong recovery in profitability». It is underlined that “the strengthening of the balance sheets of Italian banks has been significant in recent years: at the end of last year this led to an average level of capitalization higher than the average of large European banks and more than double compared to that preceding the crisis global finance”.
Source: IL Tempo
Roy Brown is a renowned economist and author at The Nation View. He has a deep understanding of the global economy and its intricacies. He writes about a wide range of economic topics, including monetary policy, fiscal policy, international trade, and labor markets.
