Societe Generale: “Italy’s political gridlock creates headwind for the economy”

Italy is still without a new government after the 24-25 February election and while hope remains that the two working groups will be able to find compromise and the basis for a stable government, the risk that Italy will soon return to the voting booths remains high, Societe Generale has warned today in a research note.

On April 18, the process to select a new president ahead of the expiration of President Napolitano’s mandate on May 15 will begin.

“The prolonged political gridlock is creating an additional headwind for the Italian economy adding to downside risks to our central scenario. The one positive development over the weekend was approval for the payment of €40bn (2.6% of GDP) of public sector arrears. In our opinion, this factor taken in isolation will boost GDP growth by 0.4pp relative to our baseline,” the bank said.

Due to the timing of the measures, the bulk of the impact will appear on the annual GDP numbers for 2014.

Minister of Finance Grilli is due to meet EU Commissioner Rehn on Monday to discuss the impact hereof on Italian public finances.

“We expect Italy to be allowed flexibility on this point as already signalled by the Commission. MARKET ISSUES: Italy is currently in a unsustainable vacuum. The real risk is to see Italy fall behind on the structural reform program On our minds – Week Ahead 8 April 2013 3 8 April 2013 badly need to secure sustainable growth for the economy in the medium term,” Societe Generale said.

 

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