Italy: Revised national accounts show Q1 collapse even worse than first estimated
May 29, 2020
In the first quarter of the year, Italy’s GDP collapsed 5.3% over the previous period in seasonally- and working-day adjusted terms amid lockdown measures to contain the spread of the coronavirus, according to a second estimate released by Italy’s Statistical Institute (ISTAT). The result came in well below Q4’s 0.2% dip, as well as the preliminary estimate which saw a 4.7% fall, and marked the sharpest contraction since the current historical series began in 1995. In year-on-year terms, the economy slumped a revised 5.4% in Q1 (previously reported: -4.8% year-on-year), contrasting the fourth quarter’s 0.1% uptick.
Depressed domestic demand weighed heavily on the economy in the first quarter. Household spending plunged 6.6% quarter-on-quarter, following Q4’s flat reading, hit by plunging consumer confidence and massive jobs destruction amid strict containment measures. Additionally, gross fixed investment dived 8.2% in the quarter, following Q4’s 0.5% drop, knocked by souring business sentiment, stifled credit growth, soaring economic uncertainty and evaporating external demand. Government consumption, meanwhile, contracted 0.3% in Q1, down from Q4’s 0.1% dip, as the government remains constrained by its frail fiscal position.
All told, domestic demand excluding stocks subtracted 5.5 percentage points to growth in Q1, while stock variation added 1.0 percentage points from quarter-on-quarter growth, as vanishing demand translated into crammed warehouses.
Meanwhile, the external sector subtracted 0.8 percentage points to growth in Q1, after adding 0.6 percentage points in Q4, reflecting a sharper contraction in exports than in imports. Exports of goods and services plummeted 8.0% quarter-on-quarter after increasing a timid 0.2% in Q4 amid disrupted supply chains in the EU and waning demand from China, while imports of goods and services sunk 6.2% quarter-on-quarter after falling 2.0% in Q4.
This year, the health crisis will deal an unprecedented blow to Italy’s already-struggling economy, disrupting supply chains and extinguishing domestic and external demand. This will jeopardize fiscal sustainability and heighten risks of financial turmoil, with the banking system’s existing fragilities and lingering political instability added downside risks.