“The Bank of Italy and the International Monetary Fund have both revised down their economic outlook, predicting growth of less than 1 percent this year. Political uncertainty ahead of a referendum that’s threatening to topple the government, and banks’ high share of non-performing loans, are weighing on domestic demand, while trade is damped by clouding global prospects and a looming recession in the U.K. following its Brexit vote,” according to Bloomberg.

Last year, reforms to Italy’s banking sector were seen as a potential driver of improved equity market performance. Specifically, the reforms would turn these types of banks into possible takeover targets almost instantly. For instance, the new rules could be a catalyst for a potential merger between UBI Banca and Banca Monte dei Paschi di Siena.

Related: 10 ETFs Hit the Hardest in ‘Brexit’ Fallout

“A prolonged period of political uncertainty is the last thing that a sclerotic Italian economy now needs. Its banking system is burdened with non-performing loans that amount to around 18 percent of its outstanding loans, and its public sector debt has risen to 135 percent of GDP,” reports The Fiscal Times.

For more news and strategy on the Italy ETF market, visit our Italy category.

iShares MSCI Italy Capped ETF