GDP per capita in Italy

Italy - GDP per capita (Euros)

Q3 data confirms stagnant economy

In the third quarter of the year, Italy’s GDP grew 0.1% 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 October. The result, which marked the fourth consecutive quarter that the economy expanded 0.1%, beat analysts’ expectations that the economy would stall although underlines how frail the Italian economy remains. According to the accompanying press release, Q3’s reading reflected somewhat higher production in the industrial and services sector, which more than offsetting lower output in the agricultural sector. Meanwhile, in annual terms, growth came in at 0.3% in Q3, up from the first quarter’s 0.1% decline.

On the demand side, preliminary data indicated that domestic demand made a positive, albeit limited, contribution to growth, just about outweighing the negative contribution from the external sector amid the challenging global backdrop. Marginally increasing domestic demand suggests downbeat sentiment and gloomy demand prospects restrained business investment, which is further corroborated by stifled credit growth in the quarter. Household spending, meanwhile, likely strengthened somewhat, as suggested by higher consumer confidence, although muted wage growth and some job sheds call for caution. More detailed national accounts data will be released on 29 November.

Growth should pick up some steam in 2020, thanks to stronger domestic demand and a rebound in industrial production. Nevertheless, Italy will continue to lag behind its EU peers, weighed down by lackluster investment and muted productivity growth. Moreover, long-standing problems cloud Italy’s outlook, which the 2020 budget recently approved by the government fails to tackle. These include 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 burdensome public debt load, coupled with undisciplined government spending and political instability, could trigger renewed financial turbulence.

FocusEconomics panelists project growth of 0.4% in 2020, which is unchanged from last month’s forecast, and 0.7% in 2021.