Italy’s economy after the referendum: Now what?

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​In the wake of the resounding “no” vote to constitutional reform our latest study of the Italian referendum’s impact on the economy analyses why the results do not warrant panic.
In 2017, political uncertainty can cause a mild confidence crisis. If there are no spillovers to banks or the bond market as the baseline scenario suggests, the downturn may shave off -0.3pp of Italian GDP. In this case, the economy should grow by a mere +0.6% (see chart below).
It is reasonable to assume that a knee-jerk reaction is inevitable. But a 2011-12 style financial stress, which would cost -0.7pp in GDP growth and push Italy close to zero growth (+0.2%), should be avoided. This time around Italy benefits from stopgaps, courtesy of Europe, such as the ECB’s QE program and the ESM 2.0. Add to that the country’s structural strengths: fiscal surplus and debt ring fencing. The Italian banking sector should feel the pinch.
Italian companies will bear the brunt of a confidence shock, albeit mild. Slight divestment from abroad and tougher financing conditions mean that investment will stay flat. +2% growth was previously expected for 2017 but reality on the ground, it seems, will diverge from previous forecasts.

The impact of confidence crisis on Italian GDP growth

Sources: IHS, policyuncertainty .com, Euler Hermes estimates


Ludovic Subran

Chief Economist

Euler Hermes