S&P Global: Italy among the Stars of 2024, Growth Ahead of Germany

S&P Global: Italy among the Stars of 2024, Growth Ahead of Germany
S&P

As the economic tides shift and sway with geopolitical currents, the Italian economy stands poised at the cusp of a transformative year. According to the seasoned insights of S&P Global, Italy is expected to witness a GDP growth of 0.6% in 2024, a sliver higher than Germany’s forecasted 0.5%. At the helm of this economic forecast is Sylvain Broyer, the chief EMEA economist at S&P Global Ratings Italy, who unfurled this cautiously optimistic tapestry during the annual conference charting the economic outlook for 2024.

Broyer’s forecast, informed by a meticulous dissection of economic indicators, suggests that Italy will experience a more pronounced disinflation than its Eurozone peers, a trend anticipated to persevere throughout the year. He points to the persistent rise in real wages as a significant contributor to this outlook, indicative of a structural enhancement in Italy’s labor market. This uplift in wages is expected to serve as a catalyst for domestic consumption, thereby nurturing economic growth from within.

Public investment emerges as another protagonist in this economic narrative, with Broyer accentuating its critical role in buttressing Italy’s growth in both the immediate and medium-term horizons. Such investments, often targeted at infrastructure and innovation, are poised to sow the seeds for future prosperity.

In a financial landscape where sovereign debt spreads wield considerable influence, the analyst projects a stable Italian spread, with the average yield on the 10-year BTP hovering around 4.7%. This stability is attributed to an improvement in Italian economic fundamentals—a stark contrast to Germany, which is expected to experience growth rates lingering below its historical trend.

A decade’s span has evidently altered the economic vista, with Italy now boasting a more robust banking system and a real estate market that outshines not only Germany’s but also those of other Eurozone nations in terms of resilience. This financial solidity forms a bedrock for Italy’s promising economic outlook.

Shifting focus to the corporate sphere, Renato Panichi, senior director of corporate ratings at S&P Global Ratings, paints a picture of relative stability for Italian companies in 2024. Despite the challenges posed by elevated interest rates and geopolitical uncertainties, approximately four-fifths of Italian businesses maintain a stable outlook—a testament to their robust credit standings amid economic softness. This proportion remains consistent with the previous year and is notably more favorable than the rest of the Eurozone.

Panichi underscores Italy’s position below the European average in terms of businesses with a negative outlook. A slight decrease from the previous year’s figures reflects a restrained deterioration in credit quality, particularly when juxtaposed with Germany’s trajectory.

The services sector in Italy, buoyed especially by tourism, has demonstrated greater resilience than its manufacturing counterpart. The latter faced dampened demand towards the tail end of 2023, but service production has experienced a marked uplift, as elucidated by December’s PMI surveys.

For the year ahead, Panichi anticipates a gradual deceleration in revenue growth across Italian companies, mirroring trends in other Eurozone countries. However, a modest uptick in profitability is on the horizon, aligning with the European mean. Investment activities are also expected to temper following a bullish phase, yet Panichi is quick to clarify that this slowdown does not herald a downturn but rather a moderation of growth. He predicts that impending investments will be channeled into burgeoning megatrends such as the energy transition and digitalization.

In the financial institutional arena, Mirko Sanna of S&P Global Ratings has observed an uplift in the outlook for Italian banks since the previous year. With banks now less vulnerable to credit risk, the sector appears better equipped to navigate potential economic headwinds. While 2024 may see a normalizing of deterioration rates, with an anticipated peak in the first quarter, Sanna expects bank profitability to remain robust, with a more significant margin compression forecasted only for 2025.

In conclusion, Italy is on the brink of a year that could redefine its economic landscape. With strategic public investment, a fortified banking sector, and a resilient corporate outlook, Italy is not merely weathering the storm but may be sailing towards a brighter horizon, even as it navigates the challenges of transition.