Italy: Past the peak of the economic upswing

2 min

The economy grew at +0.2% q/q in Q2 2018 – down from +0.3% q/q in Q1 but in line with our expecta¬tions. Strong domestic demand driven by a buoyant performance of investment (+2.9% q/q) and a more modest contribution from consumption (+0.1% q/q) was largely offset by a marked negative contribution from net exports. Not only did imports post a gain of +1.8% q/q but also exports registered a further – albeit mild – correction of -0.2% q/q after a sharp decline in Q1. Looking forward, we expect economic momentum in Italy to remain relatively resilient for now, but a renewed pick-up in growth dynamics is not in the cards. While business and consumer confidence are still registering close to decade-highs, we expect elevated domestic policy uncertainty around the Italian budget debate in September/October to weigh increasingly on consumption, investment and hiring decisions. Meanwhile the lingering threat of an escalating global trade dispute appears to weigh already on Italian exports. For 2018 we expect Italian GDP growth to slow to +1.2% from +1.6% in 2017.