High rates are here to stay, it’s the new paradigm. The market is betting more optimistically on central bank tapering, it can be assumed that this will not happen until the end of the first half of the year, and we will have to wait until 2025 for the revision of inflation at the level of 2%. It is a “transition” year for Italy, with growth probably still above By Germany, but only slightly and with public investments Pnrr must accelerate to compensate for the slowdown in private ones (especially due to the end of the Superbonus). In any case, companies and Italian banks have broad enough shoulders to face this difficult situation.
This is the essence of the picture that S&P Global Ratings has outlined in its Milan offices regarding the year 2024. Barbara Castellano, the agency’s analyst with a global outlook, noted that economies have indeed proved resilient post-Covid, but “the most worrying element for us is the rise in interest rates” which “will not come down anytime soon”. The new financing terms will obviously affect companies with weaker ratings: $1,200 billion of outstanding corporate debt rated B- or below, with maturities rising at the CCC level, will double globally by 2024.
In this global scenario, Chief Economist EMEA, Sylvain Broyer confirmed the “soft landing” scenario for the Eurozone thanks to a recovery in real wages, disinflation and labor market stability. For Italy, the economist expects a “transitional year” with growth expected at 0.6%, a slightly higher pace than Germany, which is expected to stall at 0.5%. In the more immediate horizon, Italy is expected to accelerate again to 1.2% in 2025 (but will be overtaken by Germany, which will run at a pace of 1.5%) before settling at 1.3% in 2026.
According to Broyer, the country’s real disposable income will return to growth in 2024, albeit below the eurozone average, but after having inflation higher than other European nations, Italy will benefit from more support from both disinflation and next year . . A very important factor after the Superbonus boosted GDP significantly in 2021 and 2022 with a decidedly mitigating impact in 2023 and even more so in 2024 is that public investment can be fueled by the Pnrr to fill the backflow of private ones.
In terms of public debt, this suggests that Italy’s 10-year bond is yielding 4.7% on average for the year (almost 1 percentage point above current levels) with a stable spread against Germany’s Bund.
In detail about the Italian sectors, Mirko Sanna, director of financial institutions, presented the Italian banking system “much stronger and equipped to face adverse economic scenarios” thanks to the improvements achieved in the last few years, starting with the fact that “non-performing loans have been reduced to historic lows”. There is “some increase in the rate of deterioration just around the corner, but these are normal levels that Italian banks can easily maintain” and are “absolutely manageable” also because the interest margin, which “will not start to decline until 2025”, “will continue to be significantly offset credit losses.”
Renato PanichiSenior Director Corporate Ratings, paints an equally stable picture of the creditworthiness of Italian companies, even considering the fact that more than 80% of the outlooks are “stable” and the negative ones are below the European average: 8%.
The companies’ margins grew because they “passed on higher costs to end customers and that drove an increase in absolute ebitda,” he explained. Investment is seen as slowing down, “but the cycle remains one of expansion,” he noted. If we compare the average level of investment, we are 40% above 2018: certainly there is a bit of an inflationary effect, but “digitalization and the energy transition are megatrends that are about feel to yourself.”