Italy: Second estimate shows worse-than-expected Q2 collapse
September 2, 2020
A second estimate revealed that Italy’s GDP collapsed 12.8% in Q2 over the previous period in seasonally- and working-day-adjusted terms, amid lockdown measures to contain the spread of the coronavirus. The result came in below both Q1’s 5.5% contraction and the preliminary estimate of a 12.4% fall, and marked the sharpest contraction since the current historical series began in 1995. In year-on-year terms, the economy slumped a revised 17.7% in Q2 (previously reported: -17.2% year-on-year), following the first quarter’s 5.6% drop.
Depressed domestic demand weighed heavily on the economy in the second quarter. Household spending plunged 11.3% quarter-on-quarter, following Q1’s 6.7% contraction, hit by plunging consumer confidence and massive job losses amid strict containment measures. Additionally, fixed investment dived 14.9% in the quarter, following Q1’s 7.6% drop, knocked by souring business sentiment, stifled credit growth, soaring economic uncertainty and evaporating external demand. Government consumption, meanwhile, contracted 0.9% in Q2, broadly matching Q1’s 1.0% fall, as the government remains constrained by its frail fiscal position.
All told, domestic demand—excluding stocks—subtracted 9.5 percentage points from growth in Q2, while stock variation subtracted 0.9 percentage points from quarter-on-quarter growth.
Meanwhile, the external sector subtracted 2.4 percentage points from growth in Q2, after shaving off 0.9 percentage points in Q1, reflecting a sharper contraction in exports than in imports. Exports of goods and services plummeted 26.4% quarter-on-quarter (Q1: -8.0% qoq s.a.) amid disrupted supply chains in the EU and waning demand from abroad, while imports of goods and services sank 20.5% quarter-on-quarter after falling 5.9% in Q1.
The pandemic is wreaking havoc on Italy’s already-ailing economy this year, hitting domestic and external demand and disrupting supply chains. The health crisis will lead to a widening of the fiscal deficit and further accumulation of the mountainous public debt, while also deteriorating banks’ balance sheets. The recently approved EU recovery fund should reduce the likelihood of financial turmoil, although lingering political instability and long-standing problems, such as much-needed market-friendly reforms and high taxes, cloud the outlook.