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Rabobank analysts note that Italy’s economic stagnation has continued into the second quarter of 2019, but its labour market has continued to improve gradually.

Key Quotes

“PM Conte gets a second shot at forming a government without returning to the polls after weeks of political uncertainty stemming from the Lega-Five Star coalition collapse.”

“Talks between Five Star and the Democratic Party (PD) can still break down, in which case fresh elections will be held – for which Salvini’s Lega would be favourites to win.”

“Any new government will be tasked with passing the 2020 budget, which is expected to be less problematic than last year.”

“The Lega-Five Star split-up is unlikely to bring the political stability necessary to solve Italy’s long-standing problems. Therefore, we remain concerned about the long-term growth outlook.”

“In the near term, we expect the economic stagnation to continue and forecast growth to be 0.0% y/y in 2019 and 0.1% y/y in 2020.”