LIVE MARKETS-Euro area growth: Italian exceptionalism is over - BofA

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EURO AREA GROWTH: ITALIAN EXCEPTIONALISM IS OVER - BOFA

The Italian economy has outperformed the euro area’s core countries, such as France and Germany, which are saddled by fiscal issues and political instability.

Its yield spread against German Bunds -- a gauge of the risk premium investors demand to hold Italian debt -- is around 105 bps, close to the tightest levels in over three years, with some analysts seeing further tightening.

According to BofA economists, it should be trading around 90 bps in 2025 helped by rate cuts and a modest pickup in euro area GDP growth.

They flag that, with German GDP barely above pre-pandemic levels and French GDP 4% higher, Italian GDP stands out - 5.6% higher than in the fourth quarter of 2019.

"However, the 'Italian job' versus the more meagre performance of core countries reflects country-specific factors all at play simultaneously, rather than a regime shift in country fundamentals," they say, mentioning the impact of the Superbonus (a tax incentive scheme to boost improvements in buildings) and to lesser extent so far also NGEU funds.

"We think the era of growth overperformance is over for Italy," they argue. "Those factors that drove ‘Italian recovery exceptionalism’ since 2020 have now faded, and euro area average growth will be the new norm in 2025/26."

With construction support fading and downbeat prospects for foreign demand, the industry will drag on growth in the near term, they add. Moreover, higher U.S. tariffs and trade-war escalation are a major threat.

(Stefano Rebaudo)

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