Italy: 2Q GDP growth confirmed at 0.4% QoQ – ING

Paolo Pizzoli, Senior Economist at ING notes that Istat released on Friday its second estimate of 2Q17 Italian GDP, which confirmed SA and WDA GDP growth at 0.4% QoQ and 1.5% YoY, as in the preliminary estimate.

Key Quotes

“The demand breakdown shows that domestic demand was the main growth driver, with a positive 0.4% contribution to quarterly growth, while net exports turned out to be growth neutral. Digging into the domestic demand details, we note that private consumption led the pack (0.2% quarterly contribution), followed by gross fixed capital formation and inventory changes (0.1% quarterly contribution each).”

“We had expected the investment component to be stronger, and the relevant breakdown is a bit disappointing, with the biggest role still played by transport equipment, and the machinery and plant component, the most productive part of investment, contributing less than expected. The impact of generous tax incentives for fresh productive investment introduced at the beginning of the year has so far been fairly limited.”

“The relative strength of the consumption component well reflects positive developments in the Italian labour market. For the time being, with wage growth hovering at historical lows, employment growth remains the key driver in the recovery of disposable income. In a low inflation environment, this should continue to maintain the private consumption contribution to growth in positive territory over the rest of 2017.”

“Looking ahead, soft and hard evidence spanning 3Q point to a continuation of the Italian economic expansion. The pick-up in consumer and business confidence in July and, particularly, in August was well mirrored in PMI developments. The manufacturing PMI index, also released on Friday, inched up to 56.3, the highest level since March 2011 and the services reading is expected to remain upbeat, with a positive boost coming from tourism flows. On the hard data front, employment data inched up again in July, presaging continued support to household disposable income.”

“After incorporating Friday’s fresh numbers, we confirm our forecasts of another 0.4% QoQ GDP expansion in 3Q17, and average 2017 GDP growth at 1.4%.”