fabio panetta : overview of economic and financial developments in italy address by mr fabio panetta, governor of the bank of italy, at the ordinary general meeting of shareholders, rome, 28 march 2024. * * * ladies and gentlemen, the global economy remains weak. sluggish international trade and the uncertainty raised by geopolitical tensions are weighing on economic activity. the restrictive monetary policy of the european central bank ( ecb ) is dampening demand and is contributing, together with falling energy prices, to a fast decline in inflation. risks to price stability have subsided and the conditions for starting monetary easing are taking shape. as i will explain shortly, the implementation of monetary policy aimed at price stability is reflected in the bank of italy's 2023 annual accounts, which are submitted to you for approval today, and will continue to affect profitability in the near future. * * * i would like to take this opportunity to thank my predecessor ignazio visco once again for his service to the bank of italy, as we did at the symposium held recently to express our appreciation and to celebrate his two mandates at the helm of the bank. i would also like to extend my warmest wishes to piero cipollone, former deputy governor of the bank of italy, who was appointed to the ecb's executive board last november. he has been replaced on the bank of italy's governing board by chiara scotti, former senior vice president and director of research at the federal reserve bank of dallas. monetary policy and its impact on the bank's annual accounts the eurosystem central banks have purchased a large amount of securities in recent years in order to ensure that inflation returns to 2 per cent over the medium term. with the rise in inflation, the ecb governing council began to tighten its monetary policy in july 2022. it stepped up these efforts in the first nine months of 2023, raising its key interest rates by 200 basis points overall, to 4. 5 per cent on the main refinancing operations, 4. 75 per cent on the marginal lending facility, and 4 per cent on the deposit facility. the governing council has kept the policy rates unchanged since last october. the reinvestment of securities held for monetary policy purposes under the asset purchase programme ( app ) was discontinued in july 2023. maturing securities under the pandemic emergency purchase programme ( pepp ) will instead continue to be fully reinvested through the first half of 202

part due to the very speed of the recovery, with steep rises in energy prices, especially those of gas. the effects of supply bottlenecks, which are starting to be felt in italy as well, should be considered as temporary, even though they could weigh on production and prices for longer than initially expected. the legacy of the two previous crises for italy, a return to pre - pandemic levels of economic activity is not a sufficient goal. indeed, the crisis struck after a long period of slow growth and before the effects of the double - dip recession, due to the global financial crisis and the sovereign debt crisis, had been fully reabsorbed. between 2007 and 2013, gdp had fallen by 8. 5 per cent and the subsequent recovery had been very slow. in 2019, gdp was still almost 4 percentage points lower than in 2007, employment had only regained 2007 levels thanks to the strong expansion in fixed - term contracts, and geographical differences had begun to widen again. 1 / 7 bis central bankers'speeches the stagnation in productivity observed since the mid - 1990s, the double - dip recession, and the modest recovery that followed caused italy to fall behind the other advanced countries. gdp per capita, which in 1995 was about 10 per cent higher than the average for the 19 countries that currently belong to euro area, in 2019 was almost 10 per cent lower than the average for those same countries. as we know, this indicator does not consider non - market activities or the social and environmental impact of the production of goods and services ; moreover, it does not shed any light on the distribution of income. despite these shortcomings, which can be addressed by using this metric in conjunction with other appropriate and specific indicators, a country ’ s gdp per capita is closely correlated with variables such as life expectancy, educational attainment, the quality of nutrition and hygiene, and the effectiveness of health systems. overall, this indicator constitutes a basic quantitative benchmark against which to assess the degree of economic development of a country. in the years preceding the health crisis that has struck us so hard, there had been significant improvements in the allocation of resources, in the financial conditions of firms and banks, and in firms ’ competitiveness in the international markets, also following the exit of the weakest ones from the market. these developments had increased the production system ’ s capacity to withstand shocks, but were not sufficient to relaunch productivity growth. the most important factors explaining the modest recovery between 2014 and