Italy has shown solid growth, rapid disinflation

Italy has shown "relatively solid economic growth and faster disinflation", European Central Bank (ECB) board member Isabel Schnabel said at the Bocconi University in Milan on Friday, Azernews reports, citing ANSA.

In a keynote speech titled 'Has the fight against inflation been won?', Schnabel told students the "dream of central bankers is to win the battle against inflation without causing a recession" and that this is a goal "we are working towards".

However, "we must be careful not to ease financial conditions too soon", she added.

"We have to be cautious" on rates because "the last mile" of the fight against inflation "is the most difficult", she continued.

An ECB survey of 11 eurozone countries published on Friday shows that inflation expectations for the next 12 months have increased by 0.1 percentage point to 3.3% from 3.2%, while those for three-year inflation have remained unchanged at 2.5%.

Schnabel said the economy in the eurozone is "bottoming out and recovering gradually" due to a resumption in consumer spending driven by rising wages and also by the fact that "we have passed the peak of the impact of the monetary tightening policy".

The spread between Italian and German 10-year bond yields has remained "very, very low", and this "is remarkable because we have had the steepest cycle of rate hikes" in history, she continued.

Schnabel attributed the resistance of the Italian spread to "national policies in Italy" as well as to "the Tpi programme", the anti-spread shield introduced by the ECB in 2023.

The ECB executive board member said Italy's debt-to-GDP ratio remains "relatively high" and that it is "desirable to bring it down".

"However, what we have learned is that fiscal consolidation alone is not enough if there is no growth," she added.

Ensuring "long-term growth" remains a major challenge not only for Italy but for "the entire eurozone", Schnabel told students, adding that Italy "has fiscal vulnerabilities" despite its low spread.