Italy: Economy stagnates in Q3
GDP remained unchanged in seasonally adjusted quarter-on-quarter terms in Q3 from the previous quarter, following Q2’s 0.4% contraction. Compared with Q3 2022, GDP was also unchanged on a seasonally adjusted annual basis in Q3, following the 0.3% rise recorded in the previous quarter.
The quarterly downturn came amid sticky inflation and rising interest rates. Looking at the breakdown of the quarter-on-quarter growth figure by expenditure, the statistical office said that domestic demand gross of inventories detracted from the final reading, while external demand made a positive contribution. Sector-wise, the primary sector contracted, the tertiary sector recorded no growth, and the secondary sector expanded.
A more detailed breakdown will be available on 1 December.
The economy should record tepid growth in the fourth quarter of 2023, restrained by depleted savings, sticky inflation and tighter financing conditions. Next year, GDP should expand at a modest pace. Industrial production should rebound, underpinned by stronger foreign demand—especially from Germany. That said, waning savings and still-high interest rates will restrain growth. EU funds disbursement should support activity, however. A heavy public debt and rising debt-servicing costs, coupled with a possible reignition of financial turbulence, pose downside risks to the outlook. Fiscal prudence and pro-market policies from the center-right government pose upside risks.
Commenting on the release, Paolo Pizzoli, senior economist at ING, stated: “Thanks to a resilient labour market and decent wage growth, we suspect that consumption might not have acted as a drag in the third quarter, and could gain potential support over the winter from the impact of declining inflation on real disposable income.” Moreover, Pizzoli commented on Italy’s economic and fiscal outlook: “Softening growth and rising debt servicing costs are re-awakening debt sustainability concerns, which call for a swift return to primary surpluses. How big these will have to be will also depend on whether the government will manage to effectively implement the Recovery and Resilience Plan.”