Italy: GDP shrinks at historic pace in Q2, ravaged by Covid-19
July 31, 2020
The Italian economy contracted at the sharpest pace on record in the second quarter as unprecedented shutdowns closed businesses and led to massive job shedding. In the second quarter, Italy’s GDP tumbled a historic 12.4% over the previous period in seasonally- and working-day adjusted terms, according to an advance estimate released by Italy’s Statistics Institute (ISTAT) on 31 July. The result marked the third consecutive quarterly contraction (Q1 2020: -5.4% quarter-on-quarter) as well as the sharpest drop since the current historical series began in 1996. That said, Q2’s result beat analysts’ more pessimistic expectations of a 15.0% quarter on-quarter contraction. Meanwhile, in annual terms, the economy collapsed 17.3% in Q2, after plunging 5.5% in Q1 and also marking the sharpest fall on record.
According to the accompanying press release, Q2’s reading reflected plummeting production in all sectors—primary, industry and services—as the fallout from the pandemic and associated lockdown measures took its toll. On the demand side, preliminary data indicated that both domestic and external demand made negative contributions to growth. More detailed national accounts data will be released on 31 August.
The pandemic is wreaking havoc on Italy’s already-ailing economy this year, hitting domestic and external demand and disrupting supply chains. The health crisis will lead to a widening of the fiscal deficit and further accumulation of the mountainous stock of public debt, while also deteriorating banks’ balance sheets. The recently approved EU recovery fund should reduce the likelihood of financial turmoil, although lingering political instability and long-standing problems such as a cumbersome public sector, much-needed market-friendly reforms, high taxes and a sluggish judiciary all cloud Italy’s outlook.
Commenting on the outlook, Paolo Pizzoli, senior economist at ING, stated:
“All in all, today’s GDP release was far from surprising, and was even somewhat better than consensus. It will very likely be followed by a record rebound in 3Q20, which in our view will be unable to match the 2Q fall. This will still reflect emergency times. In order to have a clearer picture of the new post-emergency trend we need to wait for 4Q20. Recent developments in the epidemic come as an unwelcome reminder that this might not necessarily be the case. For the time being, under the assumption of no nationwide lockdown after the summer we pencil in an average contraction for Italian 2020 GDP of around 10%.”