Italy Foreign Direct Investment (EUR bn)

The economy shrank less than expected in Q4 2022, shedding only 0.1 percentage points of GDP from the previous quarter. Domestic demand dragged on the final reading, while net exports had a positive effect. Data for January affords cautious optimism regarding activity in Q1; business activity strengthened, both PMIs moved into expansionary terrain, and inflation moderated—although it remained in the double digits. That said, a second consecutive quarter-on-quarter contraction is not yet out of the cards. In the same month, consumer sentiment lost some ground. In politics, the governing center-right coalition won by a landslide in regional elections held in mid-February, strengthening the government. Meanwhile, the cabinet recently approved a bill on differentiated regional autonomy, which should improve public sector efficiency.