Italy: Massive rebound in Q3 on easing restrictions surpasses market expectations
In Q3, Italy’s GDP jumped a record 16.1% over the previous quarter in seasonally- and working-day adjusted terms. The result marked the first expansion following three consecutive quarterly contractions, and sharply contrasted Q2’s 13.0% quarter-on-quarter plunge—which had marked the steepest drop since the current series began in 1995. Moreover, Q3’s result beat analysts’ less optimistic expectations of a 11.0%–12.0% quarter on-quarter increase. Meanwhile, in annual terms, the economy shrank 4.7% in Q3, slightly over a quarter of the unprecedented 18.0% contraction recorded in Q2.
According to the accompanying press release, Q3’s reading reflected increasing production in all sectors—primary, industry and services—as the lifting of lockdown measures allowed businesses to resume activity and households to shop and go on holiday. On the demand side, preliminary data indicates that both domestic and external demand made positive contributions to growth. More detailed national accounts data will be released on 1 December.
The pandemic dealt a severe blow to Italy’s already-ailing economy in H1, hitting domestic and external demand and disrupting supply chains. Moreover, it has led 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 the outlook for Italy’s economy.
Commenting on the outlook, Loredana Maria Federico, chief Italian economist at Unicredit, stated:
“The economic recovery is expected to lose momentum due to the resurgence of active coronavirus cases and new restrictions related to the pandemic, which will again affect economic activity, especially in the services sector. Still, the strong rebound in 3Q20 is likely to mitigate the second wave’s impact on annual GDP growth for this year and for 2021.”