GDP in Italy

Italy GDP

Economy unexpectedly contracts in Q2

The economy shrank 0.3% in seasonally adjusted quarter-on-quarter terms in Q2, contrasting Q1’s 0.6% expansion and surprising markets on the downside.

The quarterly downturn came amid sticky inflation and rising interest rates. Looking at the breakdown of the quarter-on-quarter growth figure by expenditure, the statistical office said that domestic demand gross of inventories made a negative contribution to the final reading, while external demand made no contribution overall. The primary and secondary sectors contracted, while the tertiary sector expanded slightly.

Compared with Q2 2022, GDP increased 0.6% on a seasonally adjusted annual basis in Q2, following the 1.8% rise recorded in the previous quarter.

A more detailed breakdown will be available on 1 September.

Following Q2’s release, our panelists are likely to revise their growth estimates downwards for 2023 as a whole. The economy should record tepid growth this year, restrained by depleted savings, still-high inflation and tighter financing conditions. Market-friendly economic policies and EU funds disbursement should support activity, however. 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:

“We believe that a technical recession could still be avoided in Q3 2023. July business confidence data were a mixed bag, with another decline in manufacturing and improvements in services (tourism and transport) and construction (specialised works). We believe such a pattern is still compatible with a return to modest positive growth in the third quarter.”