Italy Private Consumption (ann. var. %)

Private Consumption in Italy

Economy expands more than expected in the first quarter

The economy grew 0.5% in seasonally adjusted quarter-on-quarter terms in Q1, contrasting Q4 2022’s 0.1% contraction and surprising markets on the upside. Compared with Q4 2022, GDP increased 1.8% on a seasonally adjusted annual basis in Q1, following the 1.4% rise recorded in the previous quarter.

The quarterly turnaround came amid improving business and consumer sentiment, declining—albeit still high—inflation, easing supply chain pressures, a strong Easter tourism season and lower energy prices. Looking at the breakdown of the quarter-on-quarter growth figure by expenditure, the statistical office said that both domestic and external demand made positive contributions to the final reading. In sectoral terms, the secondary and tertiary sectors expanded, while the primary sector remained unchanged.

A more detailed breakdown will be available on 31 May.

Following Q1’s release, our panelists are likely to revise their growth estimates upwards for 2023 as a whole. The economy should record tepid—though notable—growth this year, benefiting from market-friendly economic policies and EU funds disbursement. That said, depleted savings and higher interest rates will keep a lid on growth. A high stock of public debt, coupled with a possible reignition of financial turbulence, poses a downside risk to the outlook.

Commenting on the outlook, Paolo Pizzoli, senior economist at ING, stated:

“All in all, today’s release is doubtless a positive surprise, which is unlikely to be repeated in the next few quarters. With the impact of past rate hikes yet to fully filter through the economy (and with more rate hikes to come) we suspect that the pace of the Italian economic expansion will slow down over the next quarters. Having said that, with the statistical carryover for Italian 2023 GDP growth at 0.8% after today’s release, we will likely revise our forecast above the 1% threshold.”