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A brighter scenario 1/25/2018
Domestic demand remains the main driver of the Italian recovery. Investment rebounded, rising by 3% in Q3 2017, and private consumption moderately increased. Strong demand from non-EU countries sustained Italian sales abroad, with a positive contribution of net exports to the overall growth. In 2018, as well as in 2017, the economy is expected to increase by about 1.5%. Micro-firms in Italy remain the backbone of the productive system: they account for 95% of total firms (97% in services), employ 46.8% of total workers (ranging from 23.1% in industry to 66.7% in construction) and produce 29.7% of total value added (52% in construction).
DTAs: non-performing loans, regulation and tax rules 11/14/2017
Deferred tax assets or DTAs have built up in the banking systems of Southern European countries, including Italy. The process started in 2007 and has accelerated in 2010. The main reasons behind such increase are higher levels of non-performing loans as economic conditions have deteriorated, and tax rules. Previously, loan losses and write-downs were only partly deductible from the taxable income of Italian banks in the year they were recognised. The surplus of corporate income tax paid by banks gave rise to DTAs, part of which was not deducted from regulatory capital and so inflated bank solvency ratios. As a result, Italian banks were not incentivised to accelerate the cleaning up of their balance sheets. To encourage them to do so, the Italian government has changed the tax rules. Banks can now immediately deduct all losses and write-downs from their taxable income. This is reducing the build-up of DTAs and is having a less positive effect on bank solvency ratios than the previous tax rules.  
A domestic recovery 10/18/2017
During the first part of 2017, domestic demand remained the main driver of the continued recovery which is spreading across sectors and becoming more sustainable. Consumer and business confidence has improved. The government has recently approved the Economic and Financial Document, expecting GDP to grow by 1.5% both in 2017 and 2018. This would allow the budget deficit to GDP to narrow to 1.6% of GDP at the end of next year. In June 2017 employment reached the threshold of 23 million, almost back to pre-crisis levels. As for the labour force, there has been a significant shift in the composition by age.
Liquidation of Veneto Banca and Banca Popolare di Vicenza 7/12/2017
Given their modest size, Veneto Banca and Banca Popolare di Vicenza are set to undergo an insolvency procedure under Italian law rather than under the framework laid down by the European BRRD. Intesa Sanpaolo is set to take on some of the assets and liabilities belonging to the two banks undergoing liquidation for a token payment of one euro. The Italian government is providing state aid consisting of EUR 4.785 billion in cash injections and up to nearly EUR 12 billion in state guarantees for the deal.
Getting stronger 7/11/2017
At the beginning of 2017, the Italian recovery gained some momentum, with GDP accelerating to 1.2% y/y, strongest performance since 2011. Private consumption was up 0.5% q/q, supported by the strong demand for durable goods. Fixed investment unexpectedly declined, as Italian firms remained extremely cautious. The Italian labour market is often seen as characterised by a low participation of women. Admittedly, they represent only 41.6% of the employed people. That is more than 12 percentage points lower than the European average. Still, details show that the gap is way less marked when only the highest-educated women are taken into account.
The value of Italian non-performing loans 6/8/2017
Banks and potential investors place very different valuations on non-performing loans. The differential in the yield sought by each of these groups is the main source of the difference. The reform of Italian bankruptcy law is likely to improve the valuation of non-performing loans and make them easier to sell into the market.
More private investment 4/25/2017
In 2016, activity grew by almost 1%, driven by domestic demand. Net exports kept on negatively contributing to the overall growth for the third year in a row. Gross fixed capital formation grew by about 3%, with spending on machinery and equipment increasing by almost 4%. Over the last three years, investment of non-financial corporations grew by EUR 11 bn, while the public component has further declined, from EUR 45 bn in 2011 to EUR 35 bn in 2016. Home prices increased in Q4 2016. Even if it was a limited increase, it is the first positive figure in five years. The news flow keeps on being positive. According to the Agenzia delle Entrate, more than 528,000 residential units were sold in 2016, almost 20% more than in 2015.
Non-performing loans in Italy: an overview 3/30/2017
Non-performing loans are an inherent part of the financing activities of banks. Fluctuations in non-performing loans over the course of an economic cycle are not worrisome as long as they remain within reasonable proportions. In Italy, after two years of recession (2012 and 2013), a year of flat growth (2014) and two years of sluggish growth of less than 1% (2015 and 2016), non-performing loans have reached a level that hampers the bank lending channel. Experience in other countries shows that it is crucial to deal effectively with non-performing loans to reactivate bank lending.
2016: a brighter second half 1/24/2017
The recovery of the Italian economy accelerated, real GDP posting a 0.3% increase in the third quarter of 2016. Domestic demand was the main driver. Households remain cautious, despite an improved economic outlook and a still solid financial position. The propensity to save is up, slowing private consumption. The residential sector has been harshly affected by the prolonged crisis. House prices remain on a downward trend, but transactions are accelerating. Even if uneven, this development is widespread, and by some estimates, 2016 could have marked a rebound in residential investment. More is needed, though: dwellings are quite old and a non-negligible part of them were built before the 1974 anti-seismic norms.
Monte dei Paschi: What’s next? 1/20/2017
MPS private recapitalisation had not met the expected success. The bank should be subject to a precautionary recapitalisation provided by the Italian state. The terms and conditions of MPS recovery plan need to be reassessed.

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