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Paolo Pizzoli, senior economist at ING, explains that the Italy’s final estimate of 4Q GDP confirmed a technical recession as the GDP contracted by 0.1% quarter-on-quarter (following -0.1% in 3Q18) and was flat in year-on-year terms (from 0.6% in 3Q18).

Key Quotes

“Data shows that the quarterly GDP contraction was driven by inventory decumulation, which subtracted 0.4% from quarterly growth.”

“Available monthly data for 1Q19 does not justify big hopes of an imminent quick reversal from the soft patch of the Italian economy. Both business and consumer confidence remained weak in January and February while the PMIs were mixed. Over January and February, the manufacturing PMI averaged 47.8, clearly in contraction territory, possibly reflecting the impact of the ongoing uncertainty in the global trade environment on exporters’ production. The service PMI, instead, averaged around the 50 level, confirming the 4Q18 reading.”

“Taking into account the decent January employment reading, we tentatively anticipate another 0.1% QoQ GDP contraction in 1Q19, but risks to the downside have diminished somewhat. Looking further out, the combined effect of a possible deal between the US and China on trade and the actual disbursement of funds of the “citizenship income” scheme should help to push the Italian economy out of recession.”

“All in all, after today’s GDP data, we confirm our forecast for average Italian GDP growth of 0.1% in 2019.”