Skyline of Florence, Italy

Italy GDP Q4 2019

Italy: Economy shrinks in final quarter of 2019, wrong-footing markets

In the fourth quarter of the year, Italy’s GDP contracted 0.3% over the previous period in seasonally- and working-day adjusted terms, according to an advance estimate released by Italy’s Statistics Institute (ISTAT) on 31 January. The result, which marked the first quarterly contraction following one year of substantial stagnation, as well as the sharpest drop in close to seven years, surprised on the downside; analysts had expected the economy would grow 0.1%. According to the accompanying press release, Q4’s reading reflected lower production in the industrial and agricultural sectors, while output in the services sector was virtually flat. Meanwhile, in annual terms, the economy flatlined in Q4, down from the third quarter’s 0.5% expansion. The fourth quarter’s result brings full-year growth for 2019 to 0.2%, down from the 0.7% expansion clocked in 2018 and marking the softest reading since 2014.

On the demand side, preliminary data indicated that domestic demand weighed on growth in the quarter, outweighing the positive contribution from the external sector—which nonetheless looks set to have been modest due to the challenging external backdrop. Moreover, policy and political uncertainty and gloomy demand prospects hit business investment, which is further corroborated by anemic credit growth throughout the quarter. Household spending, meanwhile, likely weakened from the previous quarter, as suggested by muted wage growth, labor market slack and a rising savings ratio in the face of political and economic uncertainty. More detailed national accounts data will be released on 4 March.

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

“Concern remains with regard to the prolonged weakness of the industrial sector (three quarters in recession) and its negative impact – mainly via a deterioration in labor market indicators – on domestic demand and, thus, services and retail activity. However, the degree to which this negative spillover will play a role is still uncertain.”

Growth should pick up some modest steam this year, thanks to somewhat stronger domestic demand and as the industrial sector struggles out of recession. Nevertheless, Italy will continue to lag behind its EU peers, weighed down by lackluster investment and muted productivity growth. Long-standing problems cloud Italy’s outlook, and much-needed pro-market reforms and political stability will most likely remain elusive under the current governing coalition, which comprises of a fragile alliance between the center-left Democratic Party and anti-establishment Five Star Movement. Of particular concern, the country’s burdensome public debt load, coupled with undisciplined government spending and political instability, could trigger renewed financial turbulence.

Free sample report

Access essential information in the shortest time possible. FocusEconomics provide hundreds of consensus forecast reports from the most reputable economic research authorities in the world.
Close Left Media Arrows Left Media Circles Right Media Arrows Right Media Circles Arrow Quote Wave Address Email Telephone Man in front of screen with line chart Document with bar chart and magnifying glass Application window with bar chart Target with arrow Line Chart Stopwatch Globe with arrows Document with bar chart in front of screen Bar chart with magnifying glass and dollar sign Lightbulb Document with bookmark Laptop with download icon Calendar Icon Nav Menu Arrow Arrow Right Long Icon Arrow Right Icon Chevron Right Icon Chevron Left Icon Briefcase Icon Linkedin In Icon Full Linkedin Icon Filter Facebook Linkedin Twitter Pinterest