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Italy GDP Q2 2019

Italy: The economy stagnates in Q2

In the second quarter of the year, Italy’s GDP recorded zero growth over the previous period in seasonally- and working-day adjusted terms, according to an advance estimate released by Italy’s Statistics Institute (ISTAT) on 31 July. The result was down from the first quarter’s 0.1% expansion, although it beat analysts’ expectations of a 0.1% quarter-on-quarter contraction. According to the accompanying press release, the flat reading reflected growing production in the services sector offsetting lower output in the industrial and agricultural sectors. In annual terms, growth was also flat in Q2, although this was still up from the first quarter’s 0.1% decline.

Q2’s result reflected a sizable contraction in industrial production in April-May. Furthermore, business confidence remained weak in the second quarter, and credit barely grew, pointing to sluggish private sector activity. Nevertheless, a fall in the unemployment rate recorded in May and June likely gave consumer spending some breathing room, despite downbeat consumer confidence. On the demand side, preliminary data indicated that both domestic and external demand made no contribution to growth, giving a clear image of an ailing economy. More detailed national accounts data will be released on 30 August.

The economy is seen remaining weak this year, chiefly due to anemic domestic demand. Consumer spending is expected to cool amid muted wage and productivity growth and deteriorating consumer confidence. Moreover, continued political and policy unpredictability, a less favorable tax regime, high interest rates and muted credit growth will continue to hit investment. On top of that, long-standing problems weigh on Italy’s outlook, including 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 huge public debt load, coupled with undisciplined government spending, could trigger renewed financial turbulence. FocusEconomics panelists project growth of 0.1% in 2019, which is unchanged from last month’s projection, and 0.5% in 2020.

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