High rates are here to stay, it’s a new paradigm. The market is betting on a cut by the central banks in a more optimistic way, it is foreseeable that this will only happen at the end of the first half of the year and to review inflation at 2% we will have to wait until 2025. For Italy it is a “transition” year, with growth probably still above Germany but only slightly and with the Pnrr’s public investments having to accelerate to make up for the slowdown in private ones (in particular due to the end of the Superbonus). In any case, both companies and Italian banks have broad enough shoulders to face this complex situation.
This is the gist of the photograph that S&P Global Ratings outlined in its Milan offices in relation to 2024. Barbara Castellano, the agency’s analyst with a global outlook, remarked that the economies have indeed shown themselves to be resilient after Covid, but “the most worrying element for us is the rise in interest rates” which “will not fall soon”. The new financing conditions will obviously impact companies with weaker ratings: 1,200 billion dollars of corporate debt in circulation with a B- or lower rating, with an increase in maturities for the CCC level which will globally double in 2024.
In this global scenario, the EMEA chief economist, Sylvain Broyer confirmed the “soft landing” scenario for the Eurozone, thanks to the recovery of real wages, disinflation and the stability of the labor market. For Italy the economist expects a “transition year” with growth expected at 0.6%, a rate marginally higher than that of Germany which should stop at 0.5%. Beyond the more immediate horizon, Italy is expected to accelerate again to 1.2% in 2025 (but being overtaken by Germany which will run at a pace of 1.5%) and then settle at 1.3% in 2026.
According to Broyer, in 2024 real disposable income in the country will return to growth although it remains behind the Eurozone average but after having had an inflation rate higher than other European states, Italy will benefit from the greater boost deriving from both disinflation and next year. A very important factor, after the Superbonus gave a strong boost to GDP in 2021 and 2022 with a decidedly attenuating impact in 2023 and even more so in 2024, is that public investments are able to be fueled by the Pnrr to fill the backwash of private ones.
As for public debt, the indication is that the yield on the Italian 10-year bond stands on average for the year at 4.7% (almost 1 percentage point above the current level) with a stable spread towards the German Bund.
In detail of the Italian sectors, Mirko Sanna, Director Financial Institutions, presented an Italian banking system “much stronger and equipped to face adverse economic scenarios” thanks to the improvements achieved over the last few years, starting from 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, which Italian banks can easily sustain” and are “absolutely manageable” also because the interest margin, which “will only start to reduce in 2025”, “will continue to significantly offset credit losses.”
Renato PanichiSenior Director corporate ratings, paints an equally stable picture for the creditworthiness of Italian companies, also taking into consideration the fact that over 80% of the outlooks are “stable” and the negative ones are below the European average: 8% .
The companies’ margins grew because “they transferred the higher costs to the end customers and this generated an increase in the absolute value of the ebitda”, he explained. Investments are seen as slowing down, “but the cycle remains one of expansion” he remarked. If we compare the average level of investments, we are 40% above 2018: certainly there is a bit of an inflation effect, but “digitalization and energy transition are mega-trends that are making themselves felt.”