Italy: Second estimate reveals both domestic and external demand supported Q3’s rebound
A second estimate revealed that GDP soared 15.9% in Q3 over the previous period in seasonally- and working-day-adjusted terms, amid easing lockdown measures. Although the result came in slightly below the preliminary estimate of a 16.1% jump, it strongly contrasted Q2’s record 13.0% contraction and still marked the strongest expansion since the current series began in 1995. In year-on-year terms, the economy shrank a revised 5.0% in Q3 (previously reported: -4.7% yoy), softening from the second quarter’s 18.0% contraction.
Rebounding domestic and external demand drove the bounce-back in the third quarter. Household spending jumped 12.4% quarter-on-quarter, swinging from Q2’s 11.5% contraction, amid strengthening consumer confidence and job gains as lockdown measures were eased. Additionally, fixed investment jumped 31.3% in the quarter, contrasting Q2’s 17.0% drop, as businesses resumed activity and business sentiment improved. Government consumption, meanwhile, rose 0.7% in Q3, slightly higher than Q2’s 0.3% uptick.
All told, domestic demand—excluding stocks—added 13.0 percentage points to growth in Q3, while stock variation subtracted 1.0 percentage point from quarter-on-quarter growth as companies lightened stock in warehouses.
Meanwhile, the external sector added 4.0 percentage points to growth in Q3, after shaving off 2.3 percentage points in Q2, reflecting a sharp rebound in exports. Exports of goods and services skyrocketed 30.7% quarter-on-quarter (Q2: -23.9% qoq s.a.) as easing lockdown measures abroad fueled foreign demand, while imports of goods and services jumped 15.9% quarter-on-quarter after crashing 17.8% in Q2.
Looking ahead, Paolo Pizzoli, senior economist at ING, called for caution:
“Detailed third quarter GDP data confirms a strong rebound. However the impact of the second wave, and of the soft lockdowns put in place to contain it, will likely bring about a negative fourth quarter and a very soft start to 2021, before the positive impact of vaccine availability shows up in the numbers.”
GDP is set to expand in 2021, leading to a partial recovery of 2020’s losses. The gradual reopening of the global economy should support the external sector, while sustained EU funding and loose fiscal and monetary policies should fuel domestic demand. Rising Covid-19 cases and a high public debt pose downside risks, while the rollout of a vaccine could boost activity.