Panetta highlights geopolitical risks and Banca d'Italia's 2025 return to profit

The international environment in 2025 was marked by heightened economic and geopolitical tensions, notably a significant increase in US trade tariffs and proliferating armed conflicts.

This led to increased financial market volatility and global trade fragmentation.

Despite these challenges, global GDP and world trade grew more than expected, aided by lower tariffs and buoyant AI-related exports.

However, the situation deteriorated rapidly in early 2026 due to an intensifying military confrontation in the Middle East, disrupting energy and raw material supplies.

This immediately caused a surge in oil and gas prices, weakening growth prospects and rekindling inflationary pressures.

In 2025, the ECB Governing Council cut key interest rates by 100 basis points, bringing the deposit facility rate to 2 percent, and kept them unchanged since June.

This supported strengthening economic activity in the euro area, driven by investment and consumer spending, but the conflict abruptly changed this positive outlook.

Banca d'Italia's balance sheet grew by around €10 billion in 2025, mainly reflecting €91 billion in unrealized gains on gold reserves.

These gains offset a decline in securities held for monetary policy purposes.

After two years of gross losses, the Bank returned to a gross profit of approximately €3 billion for 2025, an improvement of over €10 billion.

This turnaround reflects improved net interest income due to lower key interest rates and the downsizing of the Bank's balance sheet.

The general risk provision was increased by €0.9 billion to €24.7 billion, ensuring the Bank can withstand future losses, in line with the Eurosystem's mandate to maintain price stability over profit.