The 2017 Macro-economic Environment
2017 presented a framework of particularly positive growth for all economic areas in the wake of the previous year’s results.
- The expansion cycle continued in the United States: reports at the end of the third quarter projected an upturn trend in gross domestic product within the range of +2.5% for 2017, the level of unemployment at 4.3% was at its lowest since 2000, and the composite confidence indicators were in stable expansion. The Federal Reserve continued the normalisation process on interest in a highly cautious and gradual way, raising the benchmark rate by 25 basis points three times.
- In the Eurozone, improvement to the existing macro-economic framework consolidated in the last quarters. Deviation in growth and employment decreased between the core countries area, which are more virtuous in terms of indebtedness, and the Mediterranean area, whose average levels of employment and production nevertheless remained distant from pre-crisis levels. Following a recovery in the first part of the year, inflation dropped and settled around 1.5%. Reiterating its intention to pursue the expansive monetary policy action in order to support growth and achieve inflation objectives, the European Central Bank reported a gradual withdrawal of the stimulus to the markets, reducing the number of government and corporate bonds bought on a monthly basis.
- In Italy, the current and anticipatory indicators maintained levels much higher than those forecast throughout the entire year, as regards both services and the manufacturing and construction sector. Consumption fared better than predicted, with an average +1.5% in comparison with the year before. Unemployment fell to 11.2% in the latest reports in September. After reaching the lows of the first part of the year, salaries registered a positive average variation of +0.5% during the year, still a long way from pre-crisis levels and the Eurozone average. In any case, the nation’s overall growth proved pleasantly surprising, projecting an increase in GDP in the range of 1.5% at year end.
The first months of 2017 were characterised by a see-saw performance in the returns offered by European and American government bonds. The risk pertaining to the French electoral result ceased to apply; the European bonds market recovered strongly. In this context, the Federal Reserve increased the benchmark rates three times, and the ECB confirmed its approach to expansion by continuing the bond buying plan, planning, however, to decrease this as of 2018.
The shares markets registered widely positive performances on a global level. The long wave of US presidential elections drove the American stock markets to new highs, in a context of extremely low instability. Technology sector bonds were of particular prominence.
In Europe, after a moderate start, exceeding some political tensions in France especially gave the markets a remarkable push. In the final part of the year, confidence indicators translated to macro-economic data that exceeded expectations, in Italy in particular. The Borsa di Milano was one of the continent’s best-performing, thanks also to stock reduction of liabilities in the banking sector.
The annual performances gross of the dividends were as follows: in the United States, the S&P 500 recorded a positive performance of 21.8% and the Nasdaq 29.7%; in Europe, the Euro Stoxx 50 saw 9.9% growth, the FTSE MIB 16.9%, and the DAX 12.5%; in Japan, the Nikkei 225 experienced an increase of 21.3%. The MSCI EM Index countries closed at +37.5%, with Shanghai at +24.3% and Hong Kong +41.3%.
Foreign exchange markets
After a period of substantial stability in the first quarter of 2017, the American Dollar showed widespread weakness against other world currencies. Inconsistency encountered by markets in the economic and international political approach in the first months of the new government drove operators to review the Federal Reserve’s path of normalisation, though it did increase the key interest rate by 25 overall base points three times over the course of the year.
Across the Atlantic, the European single currency benefited from a more positive context and a considerable decrease in political risk, with purchasing flows that supported its performance. The USD ended the year at 1.20 against the Euro, whereas at the same date, 112.6 Yen would buy one greenback.
Real estate market
2017 broke records for investments in Italian real estate, which rose above 11 billion euro. It was the highest amount ever achieved with 21% growth, compared to 9 billion in 2016. Significant growth was encountered in the property segment for logistics, which nearly doubled (+95%) the previous year’s figures with investments over 1.2 billion. It was, however, the offices sector that spurred the market with investments worth 4 billion (+10%) in comparison to 2016. Commercial spaces, on the other hand, saw a slight dip with investments worth 2.4 billion, 5% less than 2016. Shopping centres situated in small cities were penalised most, due to the abundant offer and growth of e-commerce. Optimal results were also experienced by the hospitality segment, which, through investments of 1.1 billion, grew 50% against 2016.
These results confirm that the Italian real estate sector is continuing to attract investors, especially from overseas, and that the trend will continue in 2018 – not only in the main squares, but in secondary markets, too. They also confirm a solid trend in the rental market, particularly in Milan.
In an insurance market that remains highly competitive and has low interest rates, without prejudice to extraordinary events, we expect a financial year that reflects the 2018-2020 Business Plan.