Italy: political headache, structural issues

Paris, 15/06/2017



Ano Kuhanathan, 

Economist (Euro area) - AXA IM R&IS


Ombretta Signori, 

Senior Strategist (Interest rates, Govies, Linkers)

Recent political developments should bring neither stability nor solutions to the country’s macroeconomic issues


Key points

  • We stick to our baseline scenario in which the current legislature runs its course.
  • A short deadline and lack of political will make the proposed electoral law unlikely to be implemented.
  • Italy still has a weak macro outlook with subdued growth, high public debt while the banking sector issues are slowly resolving.
  • Political risk is not the only driver for government bond spreads.
  • ECB tapering could also have an impact. Currently, valuations are fair, but the market technicals look fragile.
  • Net supply remains supportive this year, while market appetite for BTPs remains low. All in all, we maintain our neutral call.