Italy: GDP rebounds in Q3 on broad-based improvement
Economic activity bounced back, expanding 0.1% on a quarter-on-quarter seasonally adjusted basis in Q3 (preliminary reading: 0.0% qoq s.a.), contrasting the 0.4% contraction seen in the second quarter. On an annual basis, economic growth edged down 0.1% in Q3, following the previous quarter’s 0.3% expansion. Q3’s reading marked the worst since Q4 2020.
The upturn reflected a broad-based improvement in private consumption, public spending, fixed investment and exports.
Household spending expanded 0.7% on a seasonally adjusted sequential basis in the third quarter (Q2: 0.0% qoq s.a.), which marked the best reading since Q3 2022, as consumers benefited from lower inflation and a robust labor market. Meanwhile, fixed investment declined at a slower rate of 0.1% in Q3 from the 2.0% decrease in the previous quarter; real estate investment was positive, while investment in machinery and equipment shrank. Government spending flatlined in Q3 (Q2: -1.0% qoq s.a.). Meanwhile, destocking dragged down the economy, subtracting 1.3 percentage points from growth, swinging from a 0.9 percentage point contribution in Q2.
On the external front, exports of goods and services rebounded, growing 0.6% in the third quarter (Q2: -1.1% qoq s.a.), which marked the best reading since Q4 2022. Conversely, imports of goods and services deteriorated, contracting 2.0% in Q3 (Q2: +0.7% qoq s.a.), marking the worst reading since Q4 2022. Overall, the external sector added 1.0 percentage points to growth, improving from the 0.7 percentage point contribution in Q2.
In 2024, GDP should continue to grow, albeit at a modest pace. Industrial production is expected to partially recover, supported by stronger external demand, which will be due in large part to an anticipated German recovery. The stock of debt and the rising cost of servicing it, together with a possible renewal of financial turmoil, represent risks to the Mediterranean country’s economy. The government’s fiscal room for maneuver is, therefore, quite limited.
Commenting on the release, ING’s Paolo Pizzoli stated:
“Having a marginally positive reading instead of a flat one does not alter the broad picture of the current economic situation. The Italian economy is stagnating, and a turnaround does not seem imminent. The delayed effect of past monetary tightening is finally being felt and is now increasingly reflected in bank lending data. […] We expect all this to translate into marginally negative quarterly growth in Italian GDP in the fourth quarter, ending up with average GDP growth at 0.7% in 2023.”