Italy economy: weak growth. The Italian government has revised down the 2019 GDP growth forecast in its latest economic blueprint. Italian growth is expected to pick up in H2 2019, returning at or slightly above potential from 2020, with projections much closer to consensus than previous ones. Italian deficit and debt: no short-term confrontation, but uncertainty in the mid term. If the Italian government manages to stick to its new declared deficit and debt targets, there should be no confrontation with the EU for the time being. However, the medium-term debt trajectory remains an area of risk, as the current downward projections depend on an ambitious privatisation programme. Guidelines also include additional measures (flat tax reform and no VAT hikes) but with no clarity on how to finance them. Fixed Income – Italian BTPs back in demand, favour short-term BTPs: After a difficult end of 2018, investor demand for BTPs rebounded strongly in the first quarter of the year, especially among foreign investors. This revival of demand is due to the agreement with the EU on budget, the overall limited reaction of rating agencies and the new ECB communication on its monetary policy stance. In the desert of yield, short-term BTPs offer an attractive risk/return profile given the stabilisation in Bund-BTP spread levels. Equity – cautious in the short term. Over the short term we are cautious on Italian equity markets given the still high economic and political uncertainty. Looking ahead further, opportunities could materialise as the market is exposed to the global cycle, which we expect to pick up in the remainder of the year. Italian banking sector – improving fundamentals, but still exposed to areas of uncertainty. On the fundamental side, Italian banks have been focusing on de-risking and reducing costs, as well as domestic consolidation. Banks’ profitability still remains under pressure (interest rates margins, in particular) and this is the key reason behind the lower valuation of the Italian vs. the European banking sector.