Economy posts a flat reading in the third quarter

Stagnation surprises markets: According to a preliminary estimate, the Italian economy stagnated on a seasonally adjusted quarter-on-quarter basis in the third quarter, falling short of the 0.2% expansion logged in Q2 and marking the join-worst result since Q2 2023. The reading surprised markets, which had anticipated growth. On an annual basis, economic growth slowed to 0.4% in Q3 from the previous quarter’s 0.6% expansion.

Deteriorating external sector offsets increased domestic demand: According to the statistical office, Q3’s flat result was primarily driven by a rise in domestic demand offsetting a deterioration in net trade. From the supply side, a negative contribution from agriculture, forestry and fishing, as well as the industrial sector, offset a positive contribution in the services sector. A complete breakdown by expenditure will be released on 2 December.

Growth to return but undershoot government’s target: Our panel expects sequential growth to return in the current quarter, bolstered by ongoing monetary policy easing and low inflation—forecast to remain below the ECB’s 2.0% target. That said, Italy is expected to miss the government’s growth target for both 2024 and 2025—1.0% and 1.2%, respectively.

Panelist insight: Commenting on the 2025 growth outlook, Sofia Tozy, analyst at Crédit Agricole stated: “In 2025, although the decrease in rates may provide some support to growth, the positive effects of monetary easing will be partially offset by the expected correction in the construction sector. In this context, activity is expected to continue growing at a moderate pace over the forecast horizon, with 0.8% anticipated for 2024 and 2025.”

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