Italy: Revised GDP growth surprises on the upside thanks to firm domestic demand
June 1, 2017
The Italian economy accelerated slightly and surprised on the upside in the first quarter of 2017. In Q1 2017, GDP grew a revised 0.4% over the previous quarter in seasonally and working-day adjusted terms, mainly thanks to growing inventories and solid private consumption, according to detailed data released by the National Statistics Office (Istat) on 1 June. The reading was markedly higher than the preliminary estimate of a 0.2% quarter-on-quarter (qoq) expansion and came in above the 0.3% rise in Q4. In year-on-year terms, the economy expanded 1.2% in Q1, significantly up from the flash estimate of a 0.8% increase and above Q4’s 1.1% growth.
Growth in Italy continues to be underpinned by recovering domestic demand. In particular, private consumption grew 0.5% in Q1 qoq, mainly driven by stronger spending on durable goods (Q4: +0.1% qoq), as households benefited from slightly lower unemployment and still contained inflation, with consumer confidence firmly above its long-term average throughout the quarter. Moreover, inventories added 0.4 percentage points to growth, following the previous quarter’s null contribution, as did government consumption (Q1: +0.5% qoq; Q4: +0.6% qoq). However, fixed investment contracted 0.8% qoq in Q1, dragged down by lower spending on machinery, equipment and transportation and a high base of comparison (Q4: +1.2% qoq).
Meanwhile, the contribution of foreign net demand to growth was more negative than in the prior quarter, subtracting 0.3 percentage points (Q4: minus 0.1 percentage points). Growth in imports of goods and services decelerated from 2.3% in Q4 to 1.6% in Q1, while exports expanded 0.7% in the first quarter, significantly down from the 1.9% increase observed in Q4.
The Italian economy continues to be burdened by numerous and long-standing structural weaknesses, namely its rigid labor market and dysfunctional institutional system, stagnant productivity, the unresolved problem of the high volume of non-performing loans in the banking sector and a large public debt. These weaknesses negatively affect the outlook, making growth prospects for the Mediterranean country very modest.