Italy’s economy to shrink for 3 straight quarters, Treasury says

Italy’s economy probably shrank in the third quarter and will continue to contract for the following two quarters, according to the latest Treasury forecasts.

The forecasts indicate the euro zone’s third largest economy, hit by soaring energy costs and record high inflation, is heading for a technical recession, defined by economists as two consecutive quarters of declining gross domestic product.

The economy held up better than expected in the first half of the year and GDP jumped 1.1% in the second quarter from the previous three months, but the Treasury’s Economic and Financial Document (DEF) published late on Friday said a downturn has already begun.

The projections provide a bleak inheritance for Giorgia Meloni, widely expected to be named prime minister this month after leading a right-wing alliance to victory at elections on Sept. 25.

The DEF estimated “slightly negative” GDP readings in both the third and fourth quarters, weighed down by contractions in the industrial sector.

“A further decline in GDP is forecast for the first quarter (of next year) followed by a pick up from the second quarter,” according to the document.

It forecast the recovery would be led by a rise in international demand, a decline in gas prices and an increasing contribution to GDP from European Union pandemic recovery funds and reforms Italy implements in return for receiving them.

The DEF, whose main numbers were released earlier last week ahead of publication of the complete document, slashed next year’s full-year GDP growth forecast to 0.6% from a 2.4% projection made in April.

It said the contraction in GDP over the second half of this year would provide a carry-over of just 0.1% at the start of 2023. By contrast, this year began with an exceptionally strong carryover of more than 2% thanks to the acceleration at the end of 2021.

Via Reuters

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