24th assiom forex congress speech by the governor of the bank of italy ignazio visco verona, 10 february 2018 global growth strengthened considerably last year although uncertainties remain linked to future us trade policies and possible upward shifts in risk premiums in the financial markets. monetary policy in the euro area has staved off deflation but inflation is still far from the levels consistent with monetary stability. economic activity in italy appears less dependent on the expansionary stance of monetary and fiscal policies. the consolidation of the recovery requires us to proceed with the economic reform effort. prudent budgetary policies will help make markets more confident in the reduction of the public debt - to - gdp ratio. lending to households and firms is expanding and loan quality is improving, partly thanks to the successful handling of the most critical situations in the banking sector. the reduction in non - performing loans must continue, exploiting the favourable economic conditions. competitive pressures and a challenging regulatory environment have made it urgent for banks to continue to limit costs and to fully recoup profitability, including through additional mergers. these needs are especially pressing in the mutual banking sector, where the 2016 reform must be implemented in toto. notwithstanding the progress made since the outbreak of the crisis, the institutional arrangements of the european union and of the euro area remain a work in progress. diminished trust among member states has led to a sterile conflict between calls for risk reduction versus those for risk sharing. these proposals are instead complementary. only by acknowledging this can solutions be found from which all countries can benefit. recent economic developments the economic expansion is increasingly broad based at global level. according to the estimates of the main international institutions, in 2017 world output returned to growth at a rate of more than 3. 5 per cent ; this year it is expected to rise by almost 4 per cent. the favourable outlook remains vulnerable to the repercussions of possible trade restrictions and to a potentially abrupt increase in risk aversion in the markets. domestic demand in the euro area is being sustained by rising employment and very accommodative financing conditions. exports are continuing to improve, driven by the uptick in foreign demand. according to the eurosystem ’ s forecasts, this year output will expand by 2. 3 per cent, a similar pace to that recorded in 2017. inflation remains low, however, reaching 1. 3 per cent in january ; core inflation also continues to be weak, partly because of the effects of wage moderation in many economies

. monetary policy is working. the strong cyclical momentum and ongoing reduction of economic slack have strengthened confidence among the members of the ecb ’ s governing council that inflation will gradually converge towards the inflation aim of a rate below, but close to, 2 per cent in the medium term. this is why we recalibrated our monetary policy interventions last october, while maintaining the highly expansionary conditions intended to ensure a lasting return to price stability. we have extended the duration of the app until september of this year, trimming our monthly purchases to €30 billion. the eurosystem will reinvest the principal payments from maturing securities purchased under the app for an extended period of time after the end of its net asset purchases, and will continue to provide abundant liquidity to the banking system until at least the end of 2019. the council expects to keep interest rates at their present levels well past the horizon of the net asset purchases. inflation, after falling slightly at the start of this year owing to the base effect associated with the temporary increase in energy commodity prices in 2017, is expected to rise gradually to levels consistent with the target in the second half of 2020. the risk of deflation has been averted but it is proving difficult to push up inflation expectations. exchange rate volatility poses one of the main risks to the inflation outlook, also given the high sensitivity of forex markets to the announcements of monetary and government authorities. the euro exchange rate is not among our objectives per se but it can have significant repercussions on the transmission of monetary policy ; disorderly developments, especially if triggered by factors unrelated to the macroeconomic fundamentals, can make it harder to achieve price stability. the decisions of the ecb ’ s governing council will continue to be shaped by economic data and by the inflation outlook. we will be patient in pursuing the inflation objective and perseverant on the monetary stance adopted. in italy gdp rose sharply in 2017. according to initial estimates, it rose from 0. 9 per cent in 2016 to 1. 5 per cent last year. employment continued to expand ( 0. 8 per cent in 2017 ), while the unemployment rate fell to 10. 8 per cent in december, its lowest level since august 2012 ; hours worked per employee also increased moderately from the low recorded in the first quarter of 2015, and grew by 0. 5 per cent in the first nine months of 2017. the expansion of productive activity is being driven by the global cyclical ups