Italy: Economy dips but beats expectations in the fourth quarter
According to a preliminary estimate, GDP declined 0.1% in Q4 in quarter-on-quarter seasonally adjusted terms, down from the 0.5% expansion recorded in the third quarter but beating market expectations.
Looking at the breakdown of the quarter-on-quarter growth figure by expenditure, the statistical office said that domestic demand made a negative contribution to the final reading while net exports had a positive effect. In sectorial terms, the primary and secondary sectors contracted while the services sector expanded.
On an annual basis, economic growth waned to 1.7% in the fourth quarter, following the previous period’s 2.7% expansion.
A more detailed breakdown will be available on 3 March.
Moving into this year, the economy will likely contract slightly in Q1. The cost-of-living crisis will put some strain on consumer spending, while higher interest rates should constrain investment. That said, the yield spread between German and Italian 10-year bonds—a proxy for Italy’s fiscal credit risk—has declined from around 220 points in late 2022 to 180 points in January, potentially reflecting a calming market. Looking ahead, the economy should record negligible growth this year due to depleted savings, higher interest rates, still-high inflation and global headwinds. Pro-market reforms pose upside risks, while elevated public debt poses a downside risk to the outlook.