Italy: Same old challenges

​The oil dividend, albeit weaker compared to 2015, the rise in real wages, and the lower bank interest rates have supported private consumption growth in 2016.  Investment – especially in equipment - has also contributed to growth. 

In 2016, industry capacity utilization rates have reached the highest annual average since 2007 (76.3%). Construction investment has entered a recovery mode and constructors’ confidence is at its highest since early 2008. 

Export performance has been poor in 2016 (+1.2% vs. +4% in 2015, see Figure 1). This is due to the slowdown in emerging markets and weak advanced economies’ growth. The stronger EUR has also played a negative role for Italian exports.

We forecast Italian GDP to grow by +0.9% in 2016, a slight acceleration from 2015. Yet growth should slow down to +0.6% in 2017, due to a still-mild confidence shock which is likely to hit banks and firms. This comes on the back of Prime Minister Renzi’s decision to step down following his proposal’s resounding defeat in the constitutional reform referendum held on December 4.