Italy: Growth accelerates in 3Q - ING

Paolo Pizzoli, Senior Economist at ING, suggests that Italy’s preliminary GDP data, up 0.5% on the quarter, points to a more balanced growth pattern and they confirm their 1.5% YoY average growth forecast for 2017, with slight upside risks.

Key Quotes

“The comforting newsflow about the Italian economy continues.”

“The preliminary estimate of Italian GDP for 3Q17, released yesterday by Istat, shows that the economy expanded by 0.5% QoQ and 1.8% YoY, in line with our above-consensus forecasts. This marks an acceleration on 2Q, when the economy had expanded by 0.3% QoQ and 1.5% YoY.”

“As usual at the preliminary stage, Istat did not disclose the detailed demand breakdown, but indicated that both domestic and net exports provided a positive contribution to quarterly growth. Sector wise, Istat notes that value added increased in industry and services, but contracted in agriculture.”

“Yesterday’s release looks consistent with what hard and soft monthly data have been telling us so far. We believe that a rebalancing of the demand components of domestic demand might have been at play in 3Q, with a growing role for machinery investment and confirmed strength in transport equipment investment. Construction investment might confirm a laggard, instead. Inventories, which had been the main driver of quarterly growth in 2Q, might have become growth neutral in 3Q, in our view. The positive contribution coming from net exports is very good news, as it co-exists with accelerating domestic demand, and in principle bodes well for short-term GDP growth development.”

“Looking ahead, available soft data evidence for 4Q17 points to a continuation of the economic expansion. After this release, acquired growth for the whole of 2017 stands at 1.5%, and coincides with our current GDP growth forecasts for the whole year. We expect slightly softer quarterly growth in 4Q, to the tune of 0.3% QoQ; anything higher would push the average yearly reading towards 1.6%.”

“So long as external conditions remain relatively favourable, with expansionary monetary policy still in place and external demand in good shape, domestic risk factors, namely the upcoming elections (expected in March 2018), do not seem strong enough to derail the recovery. The picture might change when the campaign heats up, but so far so good.”