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Italy GDP Q3 2018

Italy: Economy stagnates in Q3 following over three years of growth

In the third quarter, GDP remained unchanged over the previous quarter in seasonally- and working-day adjusted terms, according to an advance estimate released by the National Statistics Office (ISTAT) on 30 October. The result marked the worst reading since Q4 2014 and follows fourteen consecutive quarters of growth. Moreover, the reading came below analysts’ expectations of a slight 0.1% quarter-on-quarter expansion. According to the accompanying press release, the stagnation in Q3 reflected growth in the services and agricultural sectors being offset by a contraction in the industrial sector. In annual terms, GDP grew a mediocre 0.8% in Q3, down from the second quarter’s 1.2% expansion and the lowest reading in over three years.

A deterioration in the manufacturing PMI, confirmed by weak industrial production figures in the first two months of the quarter, and declining business confidence throughout Q3 hint at a further loss of momentum in an economy that has been weighed down by protracted political instability, muted productivity and wage growth, and financial turbulences. Moreover, the performance of the external sector suffered from weakness in EU demand in the third quarter. Furthermore, despite further reductions in the stock of non-performing loans recorded in the quarter, the pace of credit growth to firms remained modest. On the demand side, preliminary data indicated that both domestic and external demand were flat in the third quarter. More detailed national accounts data will be released on 30 November.

FocusEconomics analysts expect the recovery to continue next year, although at a sluggish pace. Fixed investment is seen expanding, albeit at a softer rate, supported by a banking system that has partially healed its balance sheets. Moreover, continued—although again slowing—employment growth should underpin household spending. However, long-standing problems weigh on Italy’s outlook, including: the second-highest public debt-to-GDP ratio in the European Union, sluggish productivity growth, a slow judicial system, high taxes and cumbersome bureaucracy. Moreover, downside risks stem from uncertainties surrounding the government’s stability and continuous clashes with the European Commission over the direction of its economic program, while a widening fiscal deficit and bulky public debt pose financial risks. FocusEconomics Consensus Forecast panelists see GDP growing 1.1% in 2019, which is unchanged from last month’s forecast. In 2020, the panel expects the economy to grow 1.0%.

Italy GDP Forecast

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