Italy: Economic growth stalls in Q2

GDP growth was flat over the previous quarter in Q2 in seasonally- and working-day adjusted terms, according to an advance estimate released by the National Statistics Office (ISTAT) on 12 August. The result came in slightly below the 0.3% growth tallied in Q1 and undershot the 0.2% expansion markets had expected. It also marked the lowest reading in one year and a half. More detailed data will be released on 2 September.

In annual terms, GDP grew 0.7% in Q2, which represented a deceleration compared to the 1.0% rise observed in Q1.

Commenting on the release, Loredana Federico, Lead Italy Economist at Unicredit Research, adds:

“Economic activity in Italy failed to expand in the second quarter, following 0.3% qoq GDP growth in 1Q16. The outcome was weaker than generally expected and mainly due to a (temporary) breather in the recovery of domestic demand […], probably triggered by a slight deterioration in consumer optimism about future economic prospects, which has slowed consumer spending. As we expect the improvement in real household income to continue, mainly fuelled by improving employment and still-low inflation, private consumption growth will most likely resume in the coming quarters, providing impulses to economic growth. The question mark here is to what extent the deterioration in financial market conditions (mainly the drop in equity markets) might induce households to decide to accumulate more savings, leaving the expansion in consumer spending more modest than it has been in the current recovery phase.”

FocusEconomics Consensus Forecast panelists see the economy increasing 0.9% in 2016, which is down 0.1 percentage points from last month’s forecast. For 2017, panelists also expect the economy to expand 0.9%.