Italy is now in the midst of a deep recession, as are many other countries, and there is great uncertainty about the timing and strength of the recovery. The banking system itself was not immediately threatened by the first wave of the financial crisis, but credit supply has nonetheless been sharply restrained, as elsewhere, and households have suffered large financial losses following the steep fall in equity markets. The contraction of output is likely to persist well into the current year and only a slow recovery can be expected next year. Some long-term structural problems remain to be addressed, even as attention is focused on ways to alleviate the effects of the crisis and to shorten its duration.