Italy: Economic growth steady in Q4
Quarter-on-quarter seasonally adjusted GDP growth was stable at Q3’s 0.2% in Q4. On an annual basis, economic growth gained traction, picking up to 0.6% in Q4 from the previous period’s 0.5% increase. Q4’s reading marked the strongest result since Q1.
Growth was fueled mainly by investment, net foreign demand and general government spending.
Government consumption picked up to a 0.7% increase in Q4 (Q3: +0.1% qoq s.a.). Meanwhile, fixed investment growth hit an over two-year high of 2.4% in the final quarter (Q3: +0.7% qoq s.a.), supported by a notable increase in construction activity, as households rushed to benefit from subsidies that are set to be phased out shortly. Conversely, private consumption contracted 1.4% in Q4, marking the worst result since Q4 2022 (Q3: +0.7% ), despite cooling inflation and a resilient labor market. Lastly, inventories didn’t contribute to nor detract from the GDP reading, having subtracted 1.5 percentage points from growth in Q3.
On the external front, exports of goods and services grew 1.2% in the fourth quarter (Q3: +1.2%). Conversely, imports of goods and services rebounded, growing 0.2% in Q4 (Q3: -1.9% ). Overall, the external sector added 0.4 percentage points to growth, down from the previous quarter’s 1.4 percentage-point addition.
This year, GDP should expand at an underwhelming pace as waning savings and still-high interest rates restrain growth. However, industrial production should rebound shyly, underpinned by stronger foreign demand, and EU funds disbursement should support activity. A heavy public debt and rising debt-servicing costs, coupled with a possible reignition of financial turbulence, pose downside risks to the outlook. Pro-market policies from the center-right government pose upside risks.
Commenting on the outlook, analysts at EIU stated:
“A gradual increase in real wages as a result of a tight labour market and easing inflationary pressures should underpin a modest expansion in private consumption. EU-funded investment will also offset an expected contraction in real estate investment. […] A further expansion in economic activity will be prevented by tight monetary policy, with interest rates in the euro zone remaining at a record high until at least mid-2024, and a subdued external environment, with global growth and demand for Italian exports from the US and China slowing.”