Italy: Political uncertainty to weigh on the economy

5 min
Ana Boata
Ana Boata Senior Economist for Europe

The economic soft-patch in Italy appears to have extended into the second quarter of 2018. Despite a rebound by +0.7% m/m in May, industrial production for the period March to May was still down -0.4% compared to the previous three months. Meanwhile, due to higher energy prices, gradually tightening monetary policy and elevated uncertainty at the global (persistent trade tensions) and in particular the domestic level (Italy’s budget presentation in autumn) economic conditions are unlikely to brighten notably going forward. A Bank of Italy survey on inflation and growth expectations among 1,000 Italian firms supports this view. While the assessment of current conditions stabilized in Q2, expectations across firms from all sectors have become less favorable, driven to a large extent by deteriorating financial market conditions and political uncertainty. According to the survey firms have cut their 2018 investment and hiring plans. Overall we expect Italian GDP growth to slow to +1.2% this year from +1.5% last year.