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Italy GDP Q1 2020

Italy: Economy shrinks at unprecedented pace in Q1 2020

In the first quarter of the year, Italy’s GDP tumbled 4.7% over the previous period in seasonally- and working-day adjusted terms, according to an advance estimate released by Italy’s Statistics Institute (ISTAT) on 30 April. GDP dived at an unprecedented pace due to the economic effects of the current health emergency and the associated containment measures adopted by the government. The result marked the second consecutive quarterly contraction (Q4 2019: -0.3% quarter-on-quarter) following one year of stagnation, as well as the sharpest drop since the current historical series began in 1995. Meanwhile, in annual terms, the economy contracted 4.8% in Q1, contrasting a 0.1% uptick in Q4 and also marking the sharpest fall on record.

According to the accompanying press release, Q1’s reading reflected falling production in all sectors—primary, industry and services—although the secondary and tertiary sectors were the hardest hit. On the demand side, preliminary data indicated that both domestic and external demand made negative contributions to growth. More detailed national accounts data will be released on 29 May.

Commenting on the outlook, Loredana Federico, chief Italian economist at UniCredit, stated:

“A gradual easing of restrictions will start in Italy on 4 May and will mainly involve the industrial sector. While this turn of events will likely support a recovery in economic activity, we think that the need to continue the practice of social distancing will probably prevent a return to normal economic activity, and therefore that exceptionally high levels of uncertainty are likely to continue.”

The pandemic will continue to wreak havoc on Italy’s already-ailing economy, hitting domestic and external demand and disrupting supply chains. The health crisis will also lead to a widening of the fiscal deficit and further accumulation of the mountainous stock of public debt, while also deteriorating banks’ balance sheets. Lingering political instability and episodes of financial turmoil pose further downside risks. Long-standing problems such as a cumbersome public sector, much-needed market-friendly reforms, high taxes and a sluggish judiciary further cloud Italy’s outlook.

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