in the spring of 2018. capital ratios, which up until last september had been affected by tensions on the government securities market, increased again ; last march, the cet1 ratio averaged 13. 2 per cent. in the first quarter of this year, the ratio of new non - performing loans declined for firms as a whole, but increased slightly in some sectors ( construction and manufacturing ) ; net interest income, which was already low, fell further. the prudent lending policies implemented by banks could mitigate the impact of the cyclical slowdown on the flows of non - performing loans compared with those observed in the past. operating costs need to come down further so as not to penalize banks ’ profitability again. tensions in the government bond market affect the value of the assets that are eligible as collateral in the eurosystem, push up funding costs, and have a negative effect on banks ’ capital, given the losses on portfolio securities calculated at fair value. in the second quarter of 2018, for example, the increase in yields on government bonds reduced the capital ratio by about half a percentage point on average. compared with april of last year, the market rates for bank bonds are now higher by about 15 basis points in italy, while they are 45 basis points lower in the rest of the euro area. the rating agencies are maintaining their negative – or at best stable – outlook as regards any shifts in italy ’ s credit rating. this is also why there is an urgent need to define a strategy to support investment and innovative enterprises within a credible framework for public debt reduction. the situation of the less significant banks other than mutual banks ( bccs ) is still characterized by specific weak points. for most of these banks, profitability continues to be lower than that of the significant groups and their npl ratio is higher. some are affected by inadequate corporate governance and risk control structures. the problems tend to be worse for banks in italy ’ s mezzogiorno, mainly because this region faces greater economic difficulties. their balance sheet assets are, on average, half those of banks in the centre and north ; their legal form is most commonly that of a banca popolare ( 9 banks out of 16, against 12 out of 78 in the rest of the country ) ; the assets attributable to the popolari account for more than 90 per cent of the total, compared with 10 per cent in the centre and north. as we have often pointed out, it is more difficult

cent, twice as high as before the crisis and the highest on record since this statistical series began to be collected in the 1950s. given the extensive use of wage supplementation, and also considering the longer - term changes produced by technological innovation, employment runs the risk of recovering only slowly, and with a lag behind the upturn in activity. as in other countries, the protracted slump in economic activity has weighed most heavily on the young : the employment rate for young people aged between 15 and 24 years, not counting students, has fallen to 43 per cent from 61 per cent in 2007 ; for the 25 – 34 age group it has fallen from 74 to 66 per cent. overall, the recovery still appears to be weak and uncertain. every effort must be made, at national and european level, to increase demand by fostering, in a shared vision of clearer prospects for the future, the creation of new job opportunities, business investment, and innovation geared to achieving productivity gains to transfer to incomes. the political and social difficulties besetting this course are accompanied by the presence of some risks that need special consideration. besides the evolving international situation, these relate to price dynamics, conditions on the sovereign debt market and access to credit. price dynamics in recent months, inflation in the euro area and in italy has regularly fallen by more than expected ; since october, the twelve - month rise in consumer prices has stood below 1 per cent. eurosystem projections suggest that consumer price inflation, both this year and next, will remain well below the level considered consistent with the european central bank ’ s definition of price stability, namely inflation below but close to 2 per cent over a medium - term horizon. our forecasts paint a similar picture for the evolution of consumer prices in italy. the deceleration of prices reflects not only the downward trend in the energy component, but also the cyclical weakness of the economy. the exceptional decline in economic activity provoked by the crisis may have heightened the sensitivity of inflation to cyclical conditions, in particular for goods other than food and energy. we are not in a situation of a generalized price reduction, of deflation. but even a prolonged period of price changes below the level compatible with monetary stability is undesirable. it hinders the correction of macroeconomic imbalances through the adjustment of relative prices. it can reduce consumers ’ spending capacity and adversely affect the cost of capital for investment. above all, the risk – limited at present – that long - term