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Macroeconomic scenario

In 2011, the tension on sovereign debt in the eurozone and the continuing uncertainty over the public finance consolidation process in the United States had significant repercussions on the growth prospects of the advanced economies; even in Japan a gradual weakening in the last part of the year followed the pick-up in the third quarter. On the basis of the data provided by the Bureau of Economic Analysis (BEA) and the International Monetary Fund (IMF), annualized growth in GDP in real terms in the United States amounted to 2.8% in the fourth quarter, representing a performance of 1.8% for 2011 taken as a whole. These figures should be compared with a rise of 3.8% in world GDP, driven by the leading emerging economies, although these too saw a slight slowdown. As far as the eurozone is concerned, difficulties in consolidating the limited recovery in the overall economic situation which commenced in 2010 emerged in an increasingly critical manner, ending up with worsening economic conditions. More specifically, the majority of indices pointed to a reversal in the trend in the direction of a deceleration of the economic cycle, behind which are the following factors:

  • the restrictive approach to budgetary policy followed by many eurozone countries in difficulty, which reduces household spending capacity and hence the growth prospects of the various countries;

  • the fears regarding the sustainability of the public debt of certain countries in the eurozone, in particular Greece, Spain, Italy, Portugal and Ireland. The accumulation of key imbalances in the public finances began a long while back and is still leading to considerable tension on the sovereign debt security markets, with an increase in the perception by the markets of the risk of insolvency of an increasing number of countries. To tackle the crisis, the governments of these countries have been introducing public deficit reduction programs over the past few months, which are mainly leading to a restriction in budgetary policy;

  • the rise in raw materials prices which started at the beginning of 2010; these prices stabilized at high levels during 2011, paying the price for imbalances between the demand and supply of the basic materials and partly for a deteriorating economic outlook.

The overall economic picture that materialized during 2011 was therefore characterized by low growth rates and retail prices under pressure, with a further slowdown in the second half of the year. According to data provided by the European Central Bank (ECB) and the Bank of Italy, GDP growth in the eurozone slowed down considerably in the last quarter of 2011 over the previous months (1% expected compared to 1.8% for the first nine months of the year), ending up at around 1.6%, only slightly lower than the growth achieved in 2010.

Economic conditions in Italy are even more critical than those in the eurozone taken as a whole. According to the most recent figures released by ISTAT, the Italian national statistics agency, the last quarter of 2011 in fact saw Italy enter recession, with a fall of 0.4% in GDP over the fourth quarter of 2010, following a gradual decline over the first nine months of 2011: as a result, therefore, Italy closed with a positive performance of 0.4% for 2011 against the rise of 1.4% seen in 2010.

The considerable slowing down of growth in the eurozone and the recession in Italy raise serious doubts as to the speed with which European deficits will fall, and this helps to explain the tension on the public debt markets in 2011, which has heightened over the past few months.

The spread between the yields of Italian ten-year treasury bonds and their German counterparts, which reached 550 basis points in November, its highest level since the country joined the euro, had fallen significantly by the beginning of December, with the entry of the new government and the announcement of new, incisive corrective measures to the public accounts, dropping to around 370 basis points. The spread, though, has however risen back up to the 530 mark again, presumably reflecting the uncertainties of investors about the adequacy and actual implementation of the decisions taken at the European summit of 9 December, as well as the increasing fears over the systemic nature of the crisis. The average spread between ten-year Italian BTPs and German Bunds for the whole year therefore amounted to 2.7%.

In this uncertain situation, 2011 also saw eurozone inflation rates reach considerably high levels: +2.7%, with an acceleration during the final part of the year. There was a notable increase in fiscal pressure over 2010, when inflation was 1.6%. The reasons behind this trend are mainly the pressure arriving from the energy component of the basket, in particular with reference to the prices of electricity and gas which respond with a certain time lag to the changes in the price of oil, and past rises in foodstuffs.

As far as Italy is concerned, changes in retail prices were more or less in line with those of the eurozone, with an inflation rate of 2.8% for 2011. The increase in VAT in Italy by one point in September, as part of the package of fiscal measures introduced by the Berlusconi government, only made a marginal contribution to the rise in prices in the country.

The currency markets were also affected by the deterioration in the macroeconomic situation in the eurozone. During 2011, the euro/dollar exchange rate, on average 1.39 dollars for the year as a whole, depreciated considerably from September with a fall of 8% by the end of the year compared to the peak of 1.44 dollars reached in April. The speed of the fall can be explained by the combination of two unfavorable factors: on the one hand, the worsening of the sovereign debt crisis for certain European countries and on the other the turnaround in the direction being taken by the European Central Bank, with its decision not to increase interest rates again following the measures taken in April and July 2011.