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Italy Economic Forecast

Italy Economic Outlook

The economy shrank less than expected in Q4 2022, shedding only 0.1 percentage points of GDP from the previous quarter. Domestic demand dragged on the final reading, while net exports had a positive effect. Data for January affords cautious optimism regarding activity in Q1; business activity strengthened, both PMIs moved into expansionary terrain, and inflation moderated—although it remained in the double digits. That said, a second consecutive quarter-on-quarter contraction is not yet out of the cards. In the same month, consumer sentiment lost some ground. In politics, the governing center-right coalition won by a landslide in regional elections held in mid-February, strengthening the government. Meanwhile, the cabinet recently approved a bill on differentiated regional autonomy, which should improve public sector efficiency.

Italy Inflation

Harmonized inflation eased to 10.7% in January from 12.3% in December. It should continue to decline ahead due to softer domestic demand and higher interest rates. However, statistical carry-over and pass-through effects will keep it historically high. A stronger-than-expected euro poses a downside risk. Energy and commodity price swings are key factors to watch.

Italy Economic Data

2017 2018 2019 2020 2021
Population (million) 60.1 59.9 59.8 59.6 59.2
GDP (EUR bn) 1 1 1 1 1
GDP per capita (EUR) 28 29 30 27 30
Economic Growth (Nominal GDP, ann. var. %) 2.5 1.9 1.4 -7.6 7.6
Economic Growth (GDP, ann. var. %) 1.7 0.8 0.5 -9.0 7.0
Domestic Demand (ann. var. %) 1.5 1.1 0.2 -8.0 6.6
Private Consumption (ann. var. %) 1.5 1.0 0.2 -10.4 4.7
Government Consumption (ann. var. %) -0.1 0.1 -0.6 0.0 1.5
Fixed Investment (ann. var. %) 3.4 2.8 1.2 -8.0 18.6
Exports (G&S, ann. var. %) 6.0 1.6 1.8 -14.3 14.1
Imports (G&S, ann. var. %) 6.6 2.8 -0.5 -12.7 15.3
Industrial Production (ann. var. %) 3.6 0.9 -1.1 -11.4 12.2
Retail Sales (ann. var. %) 0.0 -0.4 0.7 -5.9 7.3
Disposable Income (ann. var. %) 2.1 1.7 0.7 -2.3 3.6
Unemployment (% of active population, eop) 10.9 10.3 9.7 9.8 8.8
Unemployment (% of active population, aop) 11.3 10.6 9.9 9.3 9.5
Fiscal Balance (% of GDP) -2.4 -2.2 -1.5 -9.5 -7.2
Public Debt (% of GDP) 134.2 134.4 134.1 154.9 150.3
Inflation (CPI, ann. var. %, eop) 0.9 1.1 0.5 -0.2 3.9
Inflation (HICP, ann. var. %, eop) 1.0 1.1 0.4 -0.2 4.2
Inflation (HICP, ann. var. %, aop) 1.3 1.3 0.6 -0.1 2.0
Inflation (PPI, ann. var. %, aop) 2.3 3.3 0.2 -3.3 10.7
ECB Refinancing Rate (%, eop) 0.00 0.00 0.00 0.00 0.00
3-Month EURIBOR (%, eop) -0.33 -0.31 -0.38 -0.55 -0.57
10-Year Bond Yield (%, eop) 1.98 2.74 1.40 0.55 1.17
Stock Market (var. of FTSE MIB %) 13.6 -16.2 28.3 -5.4 23.0
Exchange Rate (USD per EUR, eop) 1.20 1.14 1.12 1.22 1.14
Exchange Rate (USD per EUR, aop) 1.13 1.18 1.12 1.14 1.18
Current Account Balance (EUR bn) 46.2 46.1 59.5 64.0 54.4
Current Account Balance (% of GDP) 2.7 2.6 3.3 3.9 3.0
Merchandise Trade Balance (EUR bn) 54.4 45.9 60.7 68.3 53.6
Foreign Direct Investment (EUR bn) 20.0 33.0 16.2 -19.3 7.5

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