Source: Tradingview

Meanwhile in Italy, the government plans to review and extend existing relief measures aimed at helping families and firms cope with sky-high energy prices. The government is working on a temporary cap on energy prices under the so-called “two-tier approach” proposed by the European Commission.

The Central Bank of Italy has reported that economic activity in the country has weakened in the last quarter of 2022, with the decline in industrial production and the waning recovery in services contributing to this trend.

Additionally, household spending has slowed down. Harmonized consumer price inflation stood at 12.3% in December on an annual basis, primarily driven by the energy component. The bank also noted that firms participating in their surveys consider that investment conditions remain unfavourable.

Employment grew slightly in October and November, and wage growth remains moderate. The bank’s projections indicate that GDP growth will weaken to 0.6% in 2023 but is expected to strengthen again in the following two years.

Consumer price inflation reached almost 9% in 2022 and is projected to decline to 6.5% in 2023 and reach 2% in 2025. Under an adverse scenario that assumes a permanent suspension of gas supply from Russia to Europe, GDP is expected to fall in 2023 and 2024, with a moderate growth the following year.

Throughout 2022 the global economy was affected by the ongoing war in Ukraine, high inflation, and weakening economic activity in China, which contributed to a slowdown in global demand and sharply lower equity prices.

From its January 2022 high of 28,212 the Italian benchmark index the FTSE MIB has lost more than 8,000 points (circa -28%). Recent signs that inflation is softening, improved supply chains, revised global growth forecasts and the sudden easing of three years of COVID-19 restrictions in China have raised hopes the corporate downturn may not be as severe as feared just a few weeks ago.

The FTSE MIB index rebounded strongly since October 2022, gaining around 29% in the short span of three months. This was primarily due to improvement in economic data, which mitigated concerns regarding an impending recession.

The upcoming earnings season will likely show whether the renewed optimism about the Italian economy that has buoyed equities over the past few months could be justified. On Thursday the index reclaimed the 26,400 level, trading at an 11-month high and approaching its January 2022 high of 28,095. The most bullish scenario at this juncture in time is a re-test of the previous highs, where strong resistance is likely to arise, which could be followed by a decline taking several months to unfold.

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