Italy: GDP growth loses momentum in Q3
Growth cooled in the third quarter, with GDP increasing 0.5% quarter on quarter, confirming the preliminary estimate and coming in below the second quarter’s 1.1% expansion. A negative contribution from the external sector was behind the deceleration.
Exports of goods and services increased 0.1% in the third quarter, which was below the second quarter’s 2.1% expansion, as weakness in the industrial sector—amid soaring production costs and global headwinds—restrained foreign sales. Meanwhile, imports of goods and services growth rose to 4.2% in Q3 (Q2: +2.1%), underpinned by robust domestic demand. Overall, the external sector subtracted 1.3 percentage points from growth, swinging from the 0.1 percentage point contribution in Q2.
On the domestic front, household spending grew 2.5% in Q3, matching the 2.5% expansion recorded in Q2, supported by a substantial increase in purchases of durable goods more than offsetting declining sales of non-durable goods. Meanwhile, fixed investment rose 0.8% in Q3, down from Q2’s 1.5% increase, as residential and non-residential buildings investment contracted, more than offsetting higher investment in machinery and equipment. Lastly, public spending dropped 0.2% (Q2: -1.2%).
On an annual basis, economic growth moderated to 2.6% in Q3, compared to the previous period’s 5.0% growth.
The economy will weaken markedly next year. Depleted savings, tighter financial conditions and still-elevated inflation should hit consumer spending. Moreover, a challenging external backdrop will weigh on exports and investments. Pro-market reforms from the newly-formed government could sustain growth and improve the business climate, however, posing an upside risk. That said, weak fiscal metrics and Russian gas cuts to the EU pose downside risks to the outlook.