Bankitalia: cost of credit slows down lending, GDP growth subdued

In Italy, the cost of credit is holding back demand for loans from businesses and, from the point of view of the state of the economy, growth remains subdued. These are two elements highlighted by Bankitalia in Economic Bulletin No. 3 of 2024, published on Friday 12 July.

The monetary tightening, underlines the institute of Via Nazionale, "continues to affect the cost of credit. The downturn in lending to businesses continues, albeit attenuating; not only a modest demand for financing, due to high interest rates and weak investment, but also restrictive supply criteria due to the widespread perception of risk contribute to this".

As regards growth, the Bulletin goes on to say, "after the moderate expansion in the first quarter of this year, according to our estimates GDP in Italy continued to grow moderately in the spring; it was still sustained by services, in particular tourism, which benefited from the good trend in spending by foreign travellers. In contrast, activity decreased in construction and manufacturing. On the demand side, the further expansion of exports and positive indications on consumption are associated with a less favourable framework for investments". Bankitalia explains that 'in our most recent macroeconomic projections, prepared as part of the Eurosystem's coordinated exercise, output will increase by 0.6 per cent in 2024 (by 0.8 excluding the correction for working days), by 0.9 in 2025 and by 1.1 in 2026'.

The increases in the tourism sector in Italy are "clearly higher" than the average inflation for services and are helping to curb the ongoing price decline in our country, which is +1.1%, below the ECB's 2% target. According to the Bank of Italy, "partly as a result of the recovery in demand, since the summer of 2022 in Italy inflation for tourist activities (accommodation, restaurants, package holidays and transport) has been significantly higher than the average inflation for services". A gap progressively narrowed in the first six months of 2024, but which still remains positive.

Positive signals arrive on the labour front. 'Employment,' the document goes on to say, 'continued to increase in the spring months: with labour market participation stable at levels above those observed before the pandemic, the unemployment rate fell further, approaching the area average. Labour cost growth in the non-agricultural private sector has strengthened in recent months, driven by contract renewals in the services sector and payments under existing agreements'.