Italian firms’ profitability could fall as growth slows, central bank says

MILAN (Reuters) – Italy’s high borrowing costs and weakening economic growth could reduce the profitability of its companies in the near future, especially those with a high debt load, the Bank of Italy said on Friday.

Rome has been struggling with modest growth this year which, combined with still high European Central Bank interest rates, could threaten margins for firms in the euro zone’s third largest economy, the central bank said.

Mostly downward risks – which have already materialised to some extent in the third quarter – are weighing on our growth projections,” the Bank of Italy warned in its twice-yearly Financial Stability Report.

The third quarter was weaker than was widely expected, according to preliminary gross domestic product data which showed stagnation compared with the previous three months.

National statistics institute ISTAT said if the fourth quarter is also flat then full-year growth will come in at just 0.4%, down from 0.7% expansion last year and well below the government’s 1% target.

The Bank of Italy’s most recent projections, made last month, pointed to 0.8% growth this year and 0.9% in 2025.

The central bank said in Friday’s report that in the 12 months to June Italian companies’ profitability has worsened for the first time since the COVID-19 pandemic, with a 2.6% fall in Gross Operating Margin (EBITDA).

It warned that with an increasingly uncertain economic outlook, a prudent approach to public finances was needed.

High public debt remains a major source of vulnerability for the country’s economy,” it said.

(Reporting by Sara Rossi, editing by Gavin Jones)