Economic trends in 2015
In 2015, the global economy was marked by moderate growth, low inflation, weakness in commodity prices and accommodating monetary conditions in advanced countries. Confidence was rocked in the spring by a new crisis in Greece, which then subsided, and subsequently by the collapse of the Chinese stock markets. Throughout the year there were signs of a sharp slowdown in the economy in numerous emerging countries. The greater uncertainty on the global economic outlook and signs of suffering in the US manufacturing sector in relation to the strengthening of the US dollar led the Federal Reserve to procrastinate in executing the expected raise in official interest rates until December. In the Eurozone, economic growth gained strength, increasingly driven by internal demand, and, specifically, by household consumer spending. The positive reflections of the recovery on employment reduced the unemployment rate. There continued to be no inflationary pressure.
In March, the European Central Bank launched a Public Sector Purchase Programme (PSPP) integrating the two previous programmes dedicated to covered bonds and ABSs. At the end of the year, the duration of the programme was extended to March 2017. The ECB also cut the rate on deposits to -0.30%. On money markets, the negative level of the rate on deposits and the excess reserves further drove down interest rates, pushing them to negative values. Government bond yields declined sharply with the launch of the ECB purchase programme and subsequently recorded significant fluctuations. For ten-year Italian bonds, the annual average spread with the Bund dropped from 165 basis points in 2014 to 119 basis points. The Euro depreciated quickly against the US dollar in the initial months of the year. It then gained ground, closing 2015 at 1.0922, well below the figure of 1.2261 at the end of 2014.
In Italy, economic recovery was confirmed further. In the fourth quarter, the gross domestic product grew by 1.0% on the same period of 2014, while average annual growth came to 0.7%. GDP growth, the first after three consecutive years of declines, was the result of internal demand, while the trade balance was still penalised by the weak performance of demand in emerging countries. Investments resumed growing, although only moderately. The pace of expansion in industrial production remained modest, but growth has been expanding at sector level.
Employment grew for the second consecutive year and, along with the recovery in real wages, supported consumer spending. The unemployment rate dropped significantly from January (12.2%) to December (11.7%), also reflecting the one-off effects of the reforms and tax incentives on the demand for labour. The rate of youth unemployment decreased further, at 38.6% in December for the 15-24 age group (from 41% earlier this year), a value which, however, remains very high. Reforms and fiscal incentives resulted in an employment shift in favour of that permanent contracts.
At the end of 2015 the government’s borrowing requirements had fallen significantly on 2014, a decrease in the deficit/GDP ratio but a new increase in debt. The government reduced the objectives of tax consolidation planned for 2016, while confirming the further reduction in the deficit and the start of a process of reducing the debt/GDP ratio.
The credit market
In 2015, the improvement in the trend in bank loans to the private sector continued, with signs of resumed growth in several operating segments, specifically in loans to consumer households and loans to the manufacturing industry. For loans to non-financial companies, the gradual rise from the recessive cycle was driven by medium-term loans, which have resumed growth since the beginning of the year. However, as a result of the ongoing decline in short-term loans, the aggregate of loans to non-financial companies continued to decrease on the whole, though at a more moderate pace than in the previous year. For loans to households, the improvement in the market scenario gained strength, with the easing of conditions for residential mortgages under way for over two years. After an upturn near mid-2015, in the second half the stock of loans to households confirmed slight growth. This recovery is driven by the significant trend in the disbursement of residential mortgages, only partially due to the renegotiation of existing loans. Specifically, the sharp growth in the disbursement of fixed-rate mortgages continued, justified by the very low levels of interest rates applied and a smaller spread between the fixed and floating rates. The performance of loans was driven by the recovery in demand, in addition to the easing of supply conditions. According to the credit survey conducted by the Bank of Italy on banks, from the second quarter 2015, demand from businesses confirmed its increasing trend, for the first time since 2011. Applications for loans from households confirmed their increase, both for the purchase of homes and for consumer credit. Among credit supply factors, competitive pressure continued to significantly encourage the easing of credit access conditions, whereas banks continued to show reduced concern with the perceived risks. Companies’ opinions on credit access conditions also confirmed their improvement. Concerning credit quality, the growth in the stock of doubtful loans decreased its pace. There was an even more significant slowdown in the flow of the ratio of new non-performing loans to total loans, thanks to the improvement in economic activity.
The easing scenario is witnessed by the reduction in banking interest rates, which reached new lows. As regards new loans to non-financial companies, the rates have reached historically low levels both for loans below 1 million euro and loans above the same amount. Rates on loans to households for the purchase of homes reached new lows at the end of the year, both for fixed-rate mortgages and for floating-rate mortgages. The favourable lending environment is also clear from a comparison between Italian rates on new loans to businesses and the average rates for the Eurozone. During the year, spreads decreased significantly. Specifically, the spread calculated on rates for new loans of over 1 million euro began declining in mid-2015 to negative values, highlighting conditions that are relatively more advantageous for Italian borrowers than the average in the Eurozone. For this size class of loans, the spread with German interest rates also reached negative ground.
Savings and bank deposits
The growth in real disposable income supported the savings rate of Italian households also in 2015. Along with the positive contribution of the financial markets, flows of savings therefore resulted in an increase in financial assets. In terms of investment approaches, the trends confirmed on the basis of the ongoing investors' asset restructuring. In a context of very low interest rates, household investments were mainly focused on asset management instruments and bank current account deposits continued to grow very strongly, due to the low-cost opportunities of holding liquidity. Conversely, also as a result of banks' reduced funding needs, the collapse of bonds continued and time deposits confirmed their downturn. Similarly to the three previous years, divestments of government securities - penalised by low yields - continued. The context was therefore also favourable to the asset management industry, which recorded a new inflow record. The year began with particularly high net inflows which, in the second half were lower while remaining highly positive. Therefore, the financial portfolio of households saw an increase in the incidence of mutual funds and insurance and pension products.