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The first time the Italian Economy fails to grow since end of 2014

  • The preliminary estimate of Q3 GDP points to a stalling Italian economy in summer and to a decelerating trend: year on year growth moves from down from 1.2% in Q2 to 0.8% in Q3.
  • Average growth so far is 1% for 2018. All else equal, this data would mechanically lower 2018 GDP growth towards 1%.
  • The estimate falls short of our and consensus expectations, highlighting increased downside risks to the outlook for 2018 and 2019.

No details on component released but, according to ISTAT (the Italian statistical office):

  • Value added from services, agriculture forestry and fishing sectors gave a positive contribution, offset by negative contribution from manufacturing.
  • On demand side: expected NULL contribution from domestic demand (gross of inventories) and NULL contribution from Net Trade.

Considerations:

  • In the same quarter, we had few positive signals, such as employment improved significantly and unemployment dropped below 10%. Credit demand for loans and investments (according to ECB BLS) picked-up. Consumer Confidence remains overall quite supportive, but on the business side, some worsening is showing up.
  • So, it could still be, in part, the result of an outsized inventory correction offsetting a weak domestic demand (likely, a weak personal consumption growth and a weaker investments performance as a payback from the strong Q2 reported data)
  • Yet, the signal is worrying as it does not look like domestic and external factors are aligned to engineer a Q4 acceleration for Italian GDP
  • A self-inflicted pain? It may be too early to read this as a domestic demand reaction to the political uncertainty, yet this could not be completely ruled out.
  • In future months,developments in business surveys optimism and capex intentions bear close watching, to monitor if domestic uncertainty and tighter financial conditions already passed-though into business decisions and into the real economy.
1-Graph-Italy-GDP
USARDI Annalisa , CFA, Senior Economist
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The first time the Italian Economy fails to grow since end of 2014
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