Italy: Activity drops at a softer rate in the first quarter
According to a preliminary estimate, GDP declined 0.4% in seasonally- and working-day adjusted terms in the first quarter, coming in slightly above market analysts’ expectations of a 0.5% fall and softening from Q4’s 1.8% contraction. On an annual basis, GDP dropped 1.4% in Q1, improving from the previous quarter’s 6.6% decrease.
The first quarter’s reading chiefly reflected an upturn in activity in the primary and industrial sectors. Meanwhile, output declined in the services sector, likely owing to pandemic-related restrictions. On the expenditure side, provisional estimates show that domestic demand contributed positively to the overall reading, while the external sector contributed negatively.
More detailed national accounts data for Q1 will be released on 1 June.
Commenting on the outlook for economic activity, Loredana Maria Federico, chief Italian economist at UniCredit, reflected:
“Containment measures remained in place through April and will be gradually loosened in May. Therefore, we expect the economic recovery to be gradual in the current quarter and to strengthen in 3Q21. […] Moreover, the government decided to prioritize additional fiscal stimulus this year to counter the pandemic (EUR 72bn, or 4% of GDP in total since January), and we expect this to support the economic recovery, in part by preventing permanent losses of economic activity in the most-affected sectors. Overall, we currently expect Italy’s real GDP to increase by 3.4% this year and to strengthen by 4.4% in 2022. Given a modest GDP contraction in 1Q21 and larger fiscal stimulus for this year than initially expected, we see the risks to our GDP forecast for 2021 as being skewed to the upside.”