Italy’s economy has underperformed expectations in the second quarter of 2023, as reported by the national statistics bureau ISTAT. The country’s gross domestic product (GDP) experienced a quarter-on-quarter drop of 0.3%, although it was up 0.6% compared to the same period last year. This data contradicts the Italian government’s forecasts of 1% growth for the entire year and a modest expansion of the economy in the second quarter.
Economists polled by Reuters had projected a flat quarter-on-quarter reading and 0.9% annual growth for Italian GDP at the end of the second quarter. However, a report by Franziska Palmas for Capital Economics suggests that Italy may experience a sharper drop in output compared to other major Eurozone countries in the second half of 2023.
ISTAT did not provide a numerical breakdown of its preliminary second-quarter GDP reading by sector. However, it stated that industrial and agriculture output decreased, while services experienced marginal growth. The bureau also noted that the 0.3% decline left Italy with a carryover growth of 0.8% in 2023, assuming flat growth in the remaining two quarters.
The Italian government had previously stated that GDP could grow by at least 1.2% this year, citing a positive trend in services driven by a flourishing tourism sector. They believed that this growth would offset the slowdown in manufacturing.
In July, ISTAT reported that annual inflation had slowed to 6.4% from 6.7% in June, based on EU-harmonized consumer prices (HICP). The growth in prices of food, household, and personal care stood at 10.4%, which was roughly in line with the previous month and more than 50% above the overall index.
These figures indicate a challenging economic situation for Italy. The underperformance in the second quarter raises concerns about the country’s ability to meet its growth targets for the year. Furthermore, the projected sharper drop in output in the second half of 2023 suggests that the economic challenges may persist. As Italy’s economy is considered one of the major economies in the Eurozone, any sustained underperformance could have broader implications for the region.
It is crucial for the Italian government to address the factors contributing to this underperformance, such as the decline in industrial and agriculture output. Additionally, measures need to be taken to support the manufacturing sector and ensure a more balanced and sustainable economic growth trajectory. Without intervention, Italy may face prolonged economic difficulties that hinder its overall recovery.
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