Multi-Asset

Italy’s debt trap

Italy is in a debt trap – and we see little prospect of sustained recovery whilst it remains within the eurozone.
March 2019

Risk Disclaimer

Views and opinions have been arrived at by BMO Global Asset Management and should not be considered to be a recommendation or solicitation to buy or sell any companies that may be mentioned.

The information, opinions, estimates or forecasts contained in this document were obtained from sources reasonably believed to be reliable and are subject to change at any time.

Italy is continuing to flail about endeavouring to find a solution to its dual problem of rising debt and falling growth. One of the most recent plans is to sell as much as €1.8bn of state-owned real estate. When in trouble sell the assets – a much-used ploy in global politics. Italy’s public debt amounted to around 133% of GDP at the end of last year, and recent IMF projections based upon current government policies have it steadily rising to around 165% by the end of the 2020s. The IMF expects real GDP growth to remain below 1% each year through to 2023. At this rate, Italy will never climb out of its deepening debt hole.

 

Risk Disclaimer

Views and opinions have been arrived at by BMO Global Asset Management and should not be considered to be a recommendation or solicitation to buy or sell any companies that may be mentioned.

The information, opinions, estimates or forecasts contained in this document were obtained from sources reasonably believed to be reliable and are subject to change at any time.

The house of cards depends on confidence

Use our handy glossary to look up any technical jargon you are unfamiliar with.

In 2018 Italy’s gross financing need (government deficit and maturing debt relative to GDP) amounted to 22.2%. In the advanced world, this was second only to Japan at 40.8% and the US at 23.3% (source: IMF). The house of cards depends on confidence – and while confidence so far remains in the US and Japan, it’s is quickly evaporating in Italy.

Disquiet amongst the voting public in Italy is unsurprising when a comparison is made with the other ‘big three’ in the eurozone: Germany, France and Spain. IMF calculations reveal that, since 2000, real GDP per capita in Italy has fallen by around 4%, whereas in Germany it is up around 23%, Spain 15% and France 12%. It cannot be said that the improvements in Germany, Spain and France are particularly impressive, but it can be said that the Italian record is spectacularly poor. The IMF notes that emigration of Italian citizens is near a five-decade high. No surprise there.

Italy is in a classic debt trap. As we have previously remarked, we see little prospect of sustained recovery whilst it remains within the eurozone.

Related capability

Multi-Asset