Italy: Q1 GDP growth revised upward; recession now less likely this year
GDP growth lost momentum, falling to 0.1% (preliminary reading: -0.1%) in the first quarter from 0.7% during the fourth quarter of last year. This marked the softest expansion since Q4 2020.
The slowdown was due to weaker household spending, which was dampened by rising inflation and the Covid-19 measures that were introduced in January. Household spending contracted 0.8% in Q1, marking the worst result since Q1 2021 (Q4 2021: 0.0%).
Public spending, meanwhile, accelerated marginally to a 0.2% increase in Q1 (Q4 2021: +0.1%). Meanwhile, fixed investment growth sped up to 3.9% in Q1, from the 3.1% expansion logged in the previous quarter, boosted by recovery funds from the EU and a construction boom.
On the external front, growth in exports of goods and services sped up to 3.5% in Q1 (Q4 2021: +0.2%). Conversely, growth in imports of goods and services ebbed to 4.3% in Q1 (Q4 2021: +4.4%).
On an annual basis, economic growth eased to 6.2% in Q1 from the previous quarter’s 6.4%.
The upward revision of the GDP growth figure means it is less likely that Italy falls into a recession this year. Our consensus projects GDP growth to be stable in Q2. That said, almost a third of our panelists anticipate GDP to contract. Private consumption will continue to be weighed down by rising inflation, while the external sector will be hampered by rising raw material prices, supply bottlenecks and a slowing global economy. Some support should come from increased government spending, however.
ING’s Paolo Pizzoli commented on the outlook:
“All in all, today’s positive surprise in revised GDP data reduces the risk of a technical recession. We continue to expect a quarterly contraction in Q2 2022, but a promising tourist season could push up GDP in Q3 2022. To be sure, a continued acceleration in inflation could complicate things, as the broadening of price increases through the consumption basket would make the government’s intervention to cap energy prices less effective in supporting household balance sheets. With the statistical carryover effect for 2022 GDP growth now at 2.6%, we will likely revise upwards our current 2.3% GDP growth forecast for Italy.”
Analysts at EIU also commented on prospects for growth this year:
“We maintain our 2.0% real GDP growth forecast for Italy in 2022. However, risks to our growth forecasts remain tilted to the downside. Any further increases in input prices or a halt in Russian gas supplies to Italy would probably lead us to revise down our headline growth forecasts for the country.”