“The second release by Istat of 3Q18 Italian GDP data offered an even bleaker picture of the state of the Italian economy,” note ING analysts and add: “In 3Q18, Italian GDP actually contracted 0.1% QoQ (vs a flat preliminary reading and +0.2% in 2Q18), posting the first negative reading since 2Q14. The year-on-year measure, better suited to monitor trend developments, also slowed down to 0.7% (from 1.2% in 2Q18).”
Key quotes
“On the back of today’s data, we revise our forecast for Italian GDP growth (calculated on seasonally- and working day-adjusted quarterly data) down to 0.9% for 2018 and to 0.8% for 2019. The latter, which follows purely on statistical carryover grounds, is exposed to downside risks.”
“Today’s disappointing GDP data will inevitably feed through to the ongoing debate on the budget between the Italian Government and the EU Commission. Optimistic growth assumptions in the budget draft (+1.5% in 2019) were part of the Commission’s critique. Today’s GDP reading makes the government growth target even more distant.”
“There have already been signs that the government may be open to possible amendments to the budget draft to include more growth initiatives, with a limited trade-off on the delivery of early pensions and citizenship income. We believe today’s data might eventually help Deputy Prime Ministers Matteo Salvini and Luigi Di Maio to defend such a move with their electorate. Time is running out, as the budget will have to be approved by the Italian Parliament before the end of the year. We still believe the Commission will give the Italian government the necessary time and that it will not try to force the start an excessive deficit procedure before 22 January.”
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