“Growth is projected to edge down to 1.4% in 2018 and 1.1% in 2019. Exports and business investment are increasingly driving the recovery. Private consumption growth will moderate due to waning job growth and weaker household purchasing power due to rising inflation.” (OECD, Italy’s Economic forecast, May 2018)
As the Euro Area’s third-largest economy, Italy has been a laggard behind Germany and some of the other Northern countries in the Euro Zone. Indeed, Italy has been slow to deal with losses at its banks and its recovery has been among the weakest in the Euro Zone. Italy’s output still languishes below the pre-crisis level.
Italy’s real GDP expanded 1.4% y/y in the first quarter of 2018 following a 1.6% expansion in the previous three-month period. Annual growth in Italy averaged 2.4% from 1961 until 2018, nonetheless high unemployment remains a fundamental problem. The unemployment rate averaged 9.5% from 1983 to 2018 and was 11.2% in April of this year.
Over the last few years the economy has been growing more strongly, and much of the growth was due to external factors. This year’s economic growth is projected at 1.4%, though along with the Euro Area neighbors. Italy’s growth is projected to slow to 1.1% in 2019.
The data indicate that exports and business investment are increasingly driving Italy’s economic growth. The OECD projects private consumer spending to slow next year due to due to slower job growth and weaker household purchasing power due to rising inflation. Italy continues to record a current account trade surplus even as its inflation rate is projected to slowly increase.
Italy’s banks are in a better shape than in the past as the stock of non-performing loans has declined markedly from its peak, thanks to new regulatory policies put in place.
The new government in Italy has worried financial markets, and as a result, Italian bond yields have recently been quite volatile. However, Italian bonds and stocks recently surged and the euro rose after Italy’s new Finance Minister Tria told the media that the government had no interest in leaving the euro.
