IMF: Italy could be in recession for two decades

The International Monetary Fund has warned of a dire future for the Italian economy as the country's financial crisis is further troubled by Britain's proposed exit from the European Union.

The world financial body believes it could take a further two decades before the country can emerge properly from the full effects of the global recession in 2008.

Monday saw a fresh set of losses for Italian banks as the EU insisted that Matteo Renzi's government must stick to state-aid rules that cut Rome's ability to intervene to help banks affected by economic stagnation.

The IMF’s report says it will be the middle of the next decade before Italy’s economy returns to its pre-2007 levels. During this period of slow recuperation, the country is likely to grow relatively poorer compared with other eurozone countries, while its banks would continue to be vulnerable to external economic factors.

The IMF’s report says it will be the middle of the next decade before Italy’s economy returns to its pre-2007 levels

“Downside risks arise from delays in addressing bank asset quality, intensified global financial market volatility – including from Brexit, the global trade slowdown weighing on exports, and the refugee influx and security threats that could further complicate policymaking,” said the IMF.

“If downside risks were to materialise, regional and global spillovers could be significant, given Italy’s systemic weight.”

Britain voted to leave the powerful European bloc on the June 22, and global markets have been feeling the after effects of the referendum, particularly thos ein already-exposed positions such as Italy.

“With the economy turning around, non-performing loans appear to be stabilising at about 18% of loans, one of the highest in the eurozone," said the IMF.

Concerns about non-performing loans (NPLs) weigh heavily on the Italian financial system, with around a third of the NPLs in the eurozone saddled by the country.

Concerns about non-performing loans (NPLs) weigh heavily on the Italian financial system

The IMF said Italian banks had raised more money during 2015 to boost their financial resilience, but still had capital ratios that were below the eurozone average.

State aid to banks is only allowed in situations of great emergency, when an economy reaches a critically bad situation, according to EU rules.

Finance minister Pier Carlo Padoan has said that they will protect the interests of savers, paving the way for a possible confrontation with the European powers.