Italy: GDP growth revised downwards in Q3
December 1, 2017
Economic growth gained some traction in the third quarter on the back of strong investment and a robust external sector. Growth came in at a revised 0.4% quarter-on-quarter growth rate in seasonally- and working-day terms (previously reported: +0.5% quarter-on-quarter), marginally above the 0.3% growth rate recorded in the previous quarter. In Q3, GDP grew a revised 1.7% compared to the same quarter of the previous year, slightly below the preliminary estimate of a 1.8% year-on-year growth. This was both an acceleration compared to Q2’s 1.5% growth rate and the fastest annual expansion since Q2 2011.
Quarter-on-quarter economic growth in Q3 continued to be underpinned by a recovery in domestic demand. Gross fixed investment jumped, growing a strong 3.0% following Q2’s 1.1% increase. This performance was broad-based and supported by higher investment in equipment, transport and construction. The latter is the largest component of Italian gross fixed investment and rebounded from a contraction recorded in the previous period. Fixed investment benefited from an improved fiscal framework and the inclusion in the 2018 budget of an extension of fiscal incentives that guarantee companies a stable set of fiscal rules.
Private consumption strengthened somewhat in Q3, rising 0.3% compared to 0.2% in Q2, as consumers benefited from low inflationary pressures and upbeat sentiment. Government consumption, on the other hand, moderated to a 0.1% increase in Q3, down from the 0.2% expansion recorded in Q2, as the government struggles to meet the EU’s fiscal requirements. The external sector’s contribution to growth swung from minus 0.4 points in Q2 to plus 0.2 percentage points in Q3. Growth in the exports of goods and services was supported by higher overseas orders from both EU and non-EU countries, jumping to 1.6% (Q2: +0.1% qoq). Growth in imports of goods and services came in at 1.2% (Q2: +1.6% qoq).
The Italian economy continues to be burdened by numerous long-standing structural problems, including a rigid labor market; stagnant productivity; high tax rates; a large, albeit declining, volume of non-performing loans in the banking sector; and high public debt. These weaknesses restrain the country’s growth potential, keeping its growth outlook below that of its European peers.
Italy GDP Forecast
FocusEconomics panelists see the economy increasing 1.3% in 2018, which is unchanged from last month’s forecast. For 2019, panelists expect the economy to expand 1.1%.