(Finance) – No pressure in sight on Italian government bondsconsidering the political stability that the country is experiencing under the government of Giorgia Meloni, even if the executive’s growth and debt prospects appear too optimistic. She is convinced of it Silvia ArdagnaHead of European Economics Research at Barclaysaccording to which there is no catalyst to create an increase in the risk premium of Italian BTPs.
“Looking at the performance of BTPs, we can say that the market has already reacted very positively – explains the economist – The spreads have narrowed considerably and fundamentally the market’s view is that the economic situation is one of growth somewhat below the trend in all eurozone countries, but what influences the positive attitude towards the Italian market is the situation of political stability“.
In the Medium-term budget structural planthe government has confirmed that it plans a GDP growth equal to 1% in 2024, even if in the meantime less brilliant macroeconomic data have arrived and government officials have become more cautious about this figure. The expectation for next year is an expansion of 0.9%, while for 2026 it is an increase of 1.1%. Barclays estimates instead, for 2024-2025-2026 respectively, GDP growth of 0.5%-0.5%-1%.
“We expect one lower growth than official estimates regarding GDP and deficit reduction“, summarizes Ardagna in a conversation with the press on the sidelines of a meeting in Milan between analysts and Italian clients of the bank. “The reasons why we expect a higher deficit is partly due to growth, because we have higher nominal growth estimates low and therefore tax revenues will automatically be lower, and in part there is a difficulty in estimating measures such as building bonuses and wage increases”, he adds.
Broadening our gaze to Europe, where very different and unexpected performances are taking place among the large economies (Barclays estimates for 2024 a drop in GDP in Germany of 0.1% and an increase in Spain of 3%), the economist states that now the distinction between core and peripheral government bonds – and therefore countries – is “outdated”.
“In the government bond market, it seems a bit like the country that investors are trying to isolate, as the most negative at the moment when thinking about the outlook, is France. And this is linked not only to public finance fundamentals – the deficit is high and the debt is growing – but also to political uncertainty. So fundamentally these risk premiums are linked not only to economic fundamentals, but also to these political risks that can generate uncertainty and therefore may require a higher risk premium.”
The spread BTP vs Bund is today in the area of 120 basis points, compared to 170 at the beginning of the year, while Oat Vs Bund is in the area of 70 basis points, compared to 50 at the beginning of the year. The yield on the German 10-year bond is at 2.34%, the French one at 3.08% and the Italian one at 3.57%.
While “if one did an analysis strictly linked to the fundamentals, despite the difficulties he is facing, the Germany it is the only large country in Europe that has fiscal space, so if there were to be one more expansionary fiscal policy after the elections the impact can only be seen as positive on growth rather than negative on the risk premium“. The German elections are therefore seen as “an important event” and could “be a positive catalyst for Europe, if there is a government that uses fiscal space to stimulate the economy a little”.
In any case, Ardagna observes, “these are important elections for the European leadership, because at this moment something truly concrete or broad in Europe cannot be decided without Franco-German leadershipwhich means not even carrying forward, for example, elements of Draghi’s report.”