| Macro-economic background and economic outlook In 1995 the rate of growth in GDP has jumped to 3% compared with 2.2% in 1994. A deceleration, evident since the last quarter of 1995, has begun later than in the other main European countries and growth is expected to remain subdued. The slowdown of economic activity is due to the slackening of import demand of Italy's main trading partners. On the whole in 1996, GDP growth is projected to be 1.8%. After rapidly accelerating from the first quarter of 1995, inflation returned to a downward path from the start of 1996. In March, it dropped to 4.5% year on year; this compares with a maximum of 6% in November 1995. Inflation is expected to fall to 3.3% by the end of 1996. Last year, despite the downward trend in interest rates in the main industrial countries, the Bank of Italy maintained a restrictive anti-inflationary monetary stance. In the first months of 1996, the sharp decrease in inflation and the appreciation of the lira caused short-term interbank rates to drop below the fixed term advances rate (10.5%). In the next few months, a decline in interest rates should be made more likely by the further reduction of inflation and the prospects of another cut in German interest rates. |