Sunday 4 December, Italians will vote on a constitutional reform that should support policymaking in Italy. Yet the reform is not without downsides. The suggestion that a 'No'-vote would put Italy on a path towards leaving the Eurozone is wrong.
Economic Update Dutch version
The moderate economic recovery continues on the back of domestic demand. We expect the economy to grow with ¾% in both 2016 and 2017, after 0.6% in 2015. The weak banking sector and political instability are the most important downward risks.
Economic growth is expected to remain subdued in the coming years, with the weak banking sector unable to support the recovery. Some major reforms achieved over the past years still have to prove their effectiveness, while reform progress will slow.
Italian banking shares dropped 30% in the first months of 2016. Policy makers have recently taken measures to revive the banking sector, but also to improve governability of the country. Measures will be partly effective in reviving the economy.
Banks have raced towards full compliance to the Basel III capital requirements. Adjustment via capital base expansion correlated positively with bank credit supply, whereas adjustment via balance sheet reduction correlated negatively.