Italy: Second estimate reveals that economy swung back to expansion in Q1
A second estimate revealed that GDP bounced back in Q1, growing 0.1% over the previous quarter in seasonally- and working-day-adjusted terms and coming in above the preliminary estimate of a 0.4% contraction. Q1’s result, which took market analysts by surprise, contrasted the 1.8% slide tallied in the prior quarter. In year-on-year terms, the economy shrank 0.8% in Q1, coming in above the preliminary estimate (previously reported: -1.4% yoy) and softening from Q4 2020’s 6.6% contraction.
Q1’s upturn was largely attributed to a solid expansion in investment. Capital sending grew 3.7% quarter-on-quarter, picking up from Q4 2020’s 0.4% increase. Meanwhile, the decline in private consumption moderated, but remained pronounced nonetheless, weighed down by lingering Covid-19 restrictions throughout the quarter (Q1: -1.2% qoq; Q4 2020: -2.7% qoq). Lastly, public spending swung back to contraction in Q1, falling 0.2% and contrasting the 1.6% growth logged in the previous quarter.
All told, domestic demand—excluding stocks—subtracted 0.1 percentage points from quarter-on-quarter growth in Q1, while stock variation added 0.8 percentage points to growth.
On the external front, exports of goods and services contracted 0.1% quarter-on-quarter in Q1 (Q4 2020: +1.6% qoq), as rising Covid-19 cases in Europe prompted the reinstatement of tight restrictions in key trading partners, hampering foreign demand. Meanwhile, imports of goods and services grew again in Q1, rising 2.3% but moderating from Q4 2020’s 5.7% increase. As a result, the external sector subtracted 0.6 percentage points from growth in Q1, above the 1.0 percentage point deducted in the prior quarter.
Looking ahead, Paolo Pizzoli, senior economist at ING, was fairly optimistic about the growth outlook:
“Looking forward, the short-term economic outlook seems rosier. The “calculated risk” taken by Prime Minister Mario Draghi when announcing accelerated reopenings in concurrence with faster vaccinations has been paying off. Contagion data has continued to decline, admittedly together with the number of tests, and new admissions in intensive care have also been falling consistently. […] The other positive factor for the outlook lies with the recovery fund. Now that the own funding procedure has received parliamentary approval by all EU members, there should be no external obstacle left to stop the disbursement of the first front-loaded tranches before the end of September. […] All in all, today’s upwardly-revised GDP data adds a clear upside risk to our GDP forecast for 2021, which will soon push above the 4% threshold.”