Italy: Italy's economy gains traction in Q3
November 14, 2017
GDP grew 0.5% over the previous quarter in Q3 in seasonally- and working-day adjusted terms, according to an advance estimate released by the National Statistics Office (ISTAT) on 14 November. The result came in above the 0.3% growth recorded in Q2 and above market analysts’ expectations of a 0.4% expansion. According to the press release, the expansion in Q2 was the result of growth in the industrial and service sectors, which was dampened by a contraction in the agricultural sector. In annual terms, GDP grew at a multi-year high of 1.8% in Q3, up from Q2’s 1.5% expansion.
Industrial production continued to grow robustly in Q3, expanding an average of 4.3% in annual terms, up from an average growth rate of 2.9% in Q2. Growth in Q3 was driven by expansions in the production of pharmaceutical products and means of transport. Moreover, both business and consumer confidence strengthened in the quarter, likely benefiting from some improvement in the troubled banking sector. Compounding the positive developments, on 27 October S&P Global Ratings revised Italy’s credit rating up for the first time in more than three decades, raising it from BBB- to BBB. It cited declining risks in the banking sector, stronger investment and steady employment growth as the main reasons behind the upgrading. On the demand side, preliminary data indicated that both domestic and external demand contributed positively to growth. More detailed national accounts data will be released on 1 December.
Despite the consolidation of the economic recovery, Italy remains burdened by numerous and long-standing structural weaknesses: political instability, stagnant productivity growth, a still-fragile banking sector and a high stock of public debt. These weaknesses keep growth prospects for Italy below those of its European peers; the economy is, nevertheless, expected to continue to grow, albeit at a moderate pace. Growth will likely come on the back of reasonably solid business investment and external demand. Softer household spending, however, could drag on growth.