Euro Currency News Updated: IMF Italy Outlook Slumps, Euro Forecast to Fall if No Solution is Found

July 12, 2016 - Written by John Cameron

STORY LINK Euro Currency News Updated: IMF Italy Outlook Slumps, Euro Forecast to Fall if No Solution is Found

The Euro has been fairly positive of late, on account of optimism in the single currency winning out against fairly unsupportive data releases.

The single currency has a rough time in store, if forecasts are to be believed; for the incoming Eurozone industrial production stats, declines are forecast on the month and the year.

GBP/EUR Exchange Rate Could Jump to 1.20 on Italian Economic Concerns

The publication of a dismal assessment of the state of the Italian economy threatens to weigh down the euro (currency : EUR) in the near-term, potentially sending the Pound to euro exchange rate back up towards the 1.2000 GBP EUR threshold once more.

The report, issued by the International Monetary Fund (IMF) earlier today, suggested that economic activity in Italy will not reach its pre-Credit Crisis level of 2008 for almost another two decades, noting that Italy’s,
‘recovery is likely to be prolonged and subject to risks. Growth is projected to remain just under 1 percent this year and about 1 percent in 2017. Risks are tilted to the downside, including from financial market volatility, the refugee surge, and headwinds from the slowdown in global trade. This growth path would imply a return to pre-crisis (2007) output levels only by the mid-2020s and a widening of Italy’s income gap with the faster growing euro area average. It also implies a protracted period of balance sheet repair, and thus of vulnerability.’

Euro Forecasts Looking Bleak, Could Italy Break from the EU?

The news sparked talk amongst analyst of a ‘lost generation’ of young unemployed Italians and engendered market whispers regarding the potential for a Brexit style referendum in Italy.

Meanwhile, the IMF’s publication contained further dark warnings and forecasts which may hamper the euro, noting that, 

‘The Italian economy is recovering gradually from a deep and protracted recession. Buoyed by exceptionally accommodative monetary policy, favourable commodity prices, supportive fiscal policy, and improved confidence on the back of the authorities’ wide-ranging reform efforts, the economy grew by 0.8 percent in 2015 and continued to expand in the first quarter of 2016. Labour market conditions have been improving gradually.’

Italian Banking Crisis May be Overblown, but EUR/GBP Conversion Rate Still Softens

One mildly encouraging element of the report soother investors’ fears that Italy’s retail banks may be in trouble. The IMF observed that,

‘non-performing loans (NPLs) appear to be stabilizing at around 18 percent of total loans. Nonetheless, the structural challenges remain significant. Productivity and investment growth are low; the unemployment rate remains above 11 percent, with considerably higher levels in some regions and among the youth; bank balance sheets are strained by very high NPLs and lengthy judicial processes; and public debt has edged up to close to 133 percent of GDP, a level that limits the fiscal space to respond to shocks.’

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TAGS: Daily Currency Updates Euro Forecasts Euro Pound Forecasts