Italy’s economy shrinks unexpectedly

The second half of 2023 is projected to see a sharper production drop compared to other Eurozone majors

Italy’s economy underperformed expectations in the second quarter of the year, according to data released by national statistics bureau ISTAT on Monday.   

The country’s gross domestic product (GDP) dropped by 0.3% quarter-on-quarter, although it was up 0.6% compared to the same period a year ago.   

The bleak data comes in contrast with Italian government forecasts of 1% growth for the entire 2023 and a modest expansion of the economy in the second quarter.   

Meanwhile, economists polled by Reuters projected Italian GDP finishing the second quarter with a flat reading quarter-on-quarter and 0.9% annual growth.    

“Italy is no longer outperforming its peers and we think it will experience a sharper drop in output than other euro-zone majors in the second half of 2023,” Franziska Palmas wrote in a report for Capital Economics seen by the news agency.

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ISTAT gave no numerical sector breakdown of its preliminary second-quarter GDP reading, but said that industrial and agriculture output decreased whereas services grew marginally.   

The bureau added that the 0.3% decline left the EU’s third biggest economy with so-called “carryover” growth of 0.8% in 2023, assuming flat growth in the remaining two quarters.  

Earlier this month, the government said that GDP could grow by at least 1.2% this year, citing a positive trend in services buoyed by a prospering tourism sector, and that this would manage to counter-balance a slowdown in manufacturing.    

According to ISTAT, annual inflation slowed to 6.4% in July from 6.7% in June, based on EU-harmonized consumer prices (HICP), while growth in prices of food, household and personal care stood at 10.4%, broadly in line with the month before and over 50% above the overall index.

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