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Italy GDP Q4 2022

Italy: GDP contracts marginally in Q4

The economy cooled in the fourth quarter, with GDP decreasing 0.1% quarter on quarter, confirming the preliminary estimate and coming in below the third quarter’s 0.4% expansion. A negative contribution from domestic demand was behind the deceleration.

On the domestic front, destocking was the main drag on the economy: It subtracted 1.1 percentage points from growth as companies lessened their stockpiles on expectations of cooling demand. Moreover, household spending contracted 1.6% in Q4, contrasting the 2.2% expansion recorded in Q3, as households felt the pinch of soaring inflation and flat wage growth. Meanwhile, fixed investment rose 2.0% in Q4, up from Q3’s 0.2% increase, sustained by tax incentives in the construction sector and inflows of EU recovery funds. Lastly, public spending grew 0.5% (Q3: -0.2%).

On the external front, exports of goods and services increased 2.6% in the fourth quarter, which was above the third quarter’s flat reading. Meanwhile, imports of goods and services fell 1.7% in Q4 (Q3: +2.5%) amid waning domestic demand. Overall, the external sector contributed 1.4 percentage points to growth, swinging from the 0.8 percentage point subtraction in Q3.

On an annual basis, economic growth moderated to 1.4% in Q4, compared to the previous period’s 2.5% growth.

A second consecutive quarter-on-quarter contraction in Q1 is not yet out of the cards, although available data for the quarter suggests cautious optimism. The cost-of-living crisis will put some strain on consumer spending, while higher interest rates may constrain investment. Looking further ahead, the economy should expand at a soft clip this year, following two years of above-average expansions. Declining purchasing power and savings amid still-high inflation will dent household spending, while global headwinds will impact exports. That said, EU funds should support activity, and pro-market reforms pose upside risks.

Commenting on the economic outlook, Paolo Pizzoli, senior economist at ING, stated:

“Looking ahead, the impact of the start of a disinflationary process after the November 2022 peak should slowly improve the growth picture. […] In the second quarter of this year, industry might again become a supply-side growth driver, but we prefer to remain prudent on the scope of growth developments as we believe the ongoing monetary policy tightening has yet to display its full effect on domestic demand.”

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