Italy: Second estimate confirms protracted stagnation in Q3
In the third quarter of the year, Italy’s GDP grew 0.1% over the previous period in seasonally- and working-day adjusted terms, according to a second estimate released by Italy’s Statistical Institute (ISTAT) on 29 November. The result matched the preliminary estimate and marked the fourth consecutive quarter that the economy expanded 0.1%, highlighting broad-based frailty within Italy’s ailing economy. In year-on-year terms, growth came in at 0.3% in Q3, up from the first quarter’s 0.1% decline and also confirming the preliminary estimate.
Consumer spending gained traction in the quarter and increased 0.4% quarter-on-quarter, up from Q2’s 0.1% quarter-on-quarter rise, supported by stronger consumer confidence and muted inflationary pressures, and despite muted wage growth and some job sheds. In contrast, gross fixed investment dipped 0.2% in the quarter, contrasting Q2’s 0.2% rise, dragged down by downbeat business sentiment, gloomy domestic demand prospects, stifled credit growth and unfavorable external trade developments. Government consumption, meanwhile, ticked up a timid 0.1% in Q3, matching Q2’s uptick, as the government remains constrained by weak fiscal metrics.
All told, domestic demand excluding stocks added 0.2 percentage points to growth in Q3, with restocking also contributing positively to growth. Stock variation added 0.3 percentage points to quarter-on-quarter growth, although faltering external demand was likely behind warehouse replenishing.
The external sector, meanwhile, detracted 0.4 percentage points from growth in the third quarter, mainly reflecting a downturn in exports owing to the continued weakness in the EU’s industrial sector. Exports of goods and services swung from expansion to contraction (Q3: -0.1% quarter-on-quarter; Q2: +1.0% qoq), while imports of goods and services gained some steam (Q3: +1.4% qoq; Q2: +1.1% qoq).
Commenting on the short-term outlook for the Italian economy, Paolo Pizzoli, senior economist for EMU, Italy and Greece at ING, stated:
“Looking ahead, there seems to be little reason to expect either a substantial acceleration or a sudden dive in Italian GDP over the current quarter; available data evidence, instead, points to continuity along the current path. High frequency confidence indicators have been sending conflicting signals over the October–November period, with composite business confidence tentatively bottoming out (under a services drive) and consumer confidence falling.”
Growth should pick up some steam in 2020, thanks to stronger domestic demand and a rebound in industrial production. Nevertheless, Italy will continue to lag behind its EU peers, weighed down by lackluster investment and muted productivity growth. Moreover, long-standing problems cloud Italy’s outlook, which the 2020 budget recently approved by the government fails to tackle. These include the second highest public-debt-to-GDP ratio in the European Union, a slow judicial system, high taxes and cumbersome bureaucracy. Of particular concern, the country’s burdensome public debt load, coupled with undisciplined government spending and political instability, could trigger renewed financial turbulence, while it seems unlikely that the new government will embark upon much-needed structural reform.
FocusEconomics panelists project growth of 0.4% in 2020, which is unchanged from last month’s forecast, and 0.7% in 2021.