Geopolitical tensions raise Italy's financial stability risks

The conflict in the Middle East has markedly increased macroeconomic and financial vulnerabilities in an environment already characterized by strong geopolitical and trade tensions and high uncertainty.

Global growth forecasts have been revised downwards, inflation expectations have risen, and international financial conditions have tightened rapidly.

Any further increases in investors' risk aversion could affect the most vulnerable segments of the financial system.

Energy price rises have worsened the global outlook for growth and inflation, with Brent crude oil prices jumping by 57 percent and European natural gas prices spiking by 40 percent to €44 per megawatt-hour in late April.

These energy price hikes have buoyed inflation, with effects already visible in March, prompting major central banks to remain cautious and monitor developments closely.

Global financial conditions have deteriorated, with government bond yields rising in the main advanced economies.

In Italy, financial stability risks primarily stem from international factors.

Italian government bond yields rose, and their spread vis-à-vis the German Bund increased slightly; share prices dropped sharply and, although they have since recovered, they remain exposed to significant fluctuations.

The financial condition of households and firms is balanced, supported by low debt and moderate credit growth.

However, a deterioration in the macroeconomic scenario could affect their confidence, impacting purchasing power and firms' costs amidst widespread uncertainty and less accommodative financial conditions.