Italy: Downgrading growth forecast - ING

Italian GDP continued to expand at a 0.3% quarterly pace in 1Q18, according to a preliminary Istat release, amid strong domestic demand, but preliminary evidence suggests the second quarter will be slightly softer, adding a downside risk to annual GDP growth, according to Paolo Pizzoli, Senior Economist at ING.

Key Quotes

“According to Istat preliminary data, Italian GDP expanded by 0.3% quarter-on-quarter (0.3% in 4Q17) and 1.4% year-on-year (1.6% in 4Q17), in line with expectations. As usual at this stage, Istat did not disclose the detailed demand breakdown but indicated that the quarterly expansion was the result of a positive contribution from domestic demand (gross of inventories) and a negative contribution from net exports. Referring to value-added, Istat reports that it increased in agriculture and in services, but contracted in industry.”

“High-frequency data released over 1Q18 was slightly disappointing, clearly reducing the chances of an acceleration in the pace of growth from the fourth quarter.”

“Downgrading 2018 forecast

• Looking ahead, there are signs that the economy will grow at a similar or slightly softer pace in the second quarter. Both manufacturing and business confidence were down in April, and the manufacturing PMI edged down to 54.4, the lowest level since February 2017.
• Consumer confidence, down marginally on the month, remains close to recent highs though, suggesting that underlying labour market dynamics remain favourable. With the political gridlock which followed the 4 March vote still unresolved and adding to underlying uncertainty, we have decided to revise our average 2018 GDP growth forecast for the Italian economy down to 1.3% from 1.4%.”