• Next year, Italy’s GDP is likely to expand by a still moderate 1.1%, vs. 1.0% in 2010. Exports should remain supportive, while slowly improving fundamentals point to a continuation of the investment recovery. Consumption is set to remain anemic, due to a still weak labor market.
  • Job shedding continued at a slower pace in 2010, and the unemployment rate is still on an upward trend. Given that sustainable employment growth is not around the corner, a decline in the unemployment rate is not likely to materialize until 2H 2011.
  • Next year, household loans should keep growing at a healthy pace, while corporate lending continues its slow recovery. Interest rates on both mortgages and corporate lending are likely to increase, in line with the expected upward trend in the Euribor rate towards year-end.
  • We see the inflation rate accelerating to 1.9% in 2011 vs. 1.5% this year. Core prices should move sideways, with food inflation picking-up during the winter. Energy prices are a source of upside risk in the near term.
  • Despite persistent political uncertainty, Italy’s sovereign rating should not be in danger, due to a combination of credible fiscal policy and sound macroeconomic/banking sector fundamentals. Risks stem from an escalation of the debt crisis and the evolution of the debt-to-GDP ratio.