IMF Cuts Italy’s Growth Forecasts, Cites Vulnerable Lenders

  • Stock prices show concerns over banking system, the fund says
  • IMF’s GDP estimate for next year below Italian government goal

The International Monetary Fund cut Italy’s growth forecasts for the second time in less than three months as it cited investors’ concerns over the outlook for the country’s banking system.

Italy’s gross domestic product will expand 0.8 percent this year and 0.9 percent next, the Washington-based IMF estimated on Tuesday in its World Economic Outlook. In July, the fund had already reduced its projection for the euro-region’s third-biggest economy, saying it expected a growth of 0.9 percent in 2016 and 1 percent in 2017.

The report also stressed the nation’s banking woes, saying that while asset prices and risk sentiment have improved globally after the declines in the aftermath of the U.K. referendum, bank stocks are an exception.

That reflects “expectations of weakened future bank profitability, as interest rates are now expected to stay very low even longer, as well as balance sheet concerns in some countries with more vulnerable banking systems, such as Italy and Portugal,” the report said.

The government led by Prime Minister Matteo Renzi, who faces a December referendum on constitutional reform that could cost him his job, reduced its growth estimates last week. It said it expects GDP to expand 0.8 percent in 2016, while targeting a rise of 1 percent next year.

Investors remain concerned both about the country’s economic recovery and on how the nation will revive its lenders, loaded with 360 billion euros ($404 billion) of troubled loans.

The Italian government is monitoring the developments at Monte dei Paschi SpA. The bank is trying to implement a plan to cede its non-performing loans and obtain a recapitalization of about 5 billion euros, Finance Minister Pier Carlo Padoan said on Monday.

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