“As expected, domestic demand turned out to be the main driver of growth, with private consumption leading the pack with a 0.2% contribution, with gross fixed capital formation and public consumption adding 0.1% each to quarterly growth. More surprisingly, net exports also added 0.1% to growth, showing that in 4Q15 the external channel was still resilient to international headwinds. No big surprises from inventories, whose negative 0.4% had been at least partially anticipated given poor industrial production data.
Today’s release confirms that the Italian economy ended the year on a soft note. Data released since the start of the year indicates that a partially similar pattern might be holding for 1Q16. Resilient consumer confidence and declining inflation are maintaining a favourable environment for private consumption as is the first batch of employment data, which has improved further, irrespective of the sharp reduction in the tax incentives to open-ended new hirings.
In January and February PMIs stayed safely in expansion territory, both in services and manufacturing. Less positively, the extremely volatile start of the year in the stock market, and in particular in banking stocks, might have a temporary negative bearing on private investments. All in all, at a time when most hard data for this quarter is yet to be released, we tentatively pencil in a 0.2% quarterly expansion of the Italian GDP in 1Q16 and 0.9% average GDP growth for the whole year.”
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