The Italian economy proved more resilient in early 2022 than expected in spring thanks to buoyant construction activity. In the short term, output growth is being supported by rising services activity following the lifting of almost all COVID-related restrictions and still robust production in construction. Real GDP growth in 2022 is projected at 2.9%, benefiting from a substantial carry-over effect from 2021 and an upward revision of GDP growth in Q1 2022. However, the loss in households’ real purchasing power, waning business and consumer sentiment, persistent supply bottlenecks and rising funding costs overshadow the economic outlook. Thus, growth is expected to remain subdued over the forecast horizon. Output growth is estimated at only 0.9% in 2023, also given the projected weak momentum carried over from this year. The risks to the growth outlook are tilted to the downside, in particular in view of potential supply disruptions of natural gas, given Italy’s still sizeable dependency on deliveries from Russia despite recent diversification efforts
Last update : Summer 2022 Economic Forecast (14/07/2022)
|GDP growth (%, yoy)||-9,0||6,6||2,9||0,9|
|Inflation (%, yoy)||-0,1||1,9||7,4||3,4|
Consumer spending is set to slow down considerably over the forecast horizon. Households’ losses in real purchasing power caused by soaring energy and food prices incurred by the energy-driven income shock are only partly compensated by government measures and accumulated savings. Investment increased at a high pace in the first quarter of 2022 and will continue to be supported by the implementation of Italy’s RRP over the forecast horizon. However, deteriorating demand prospects and rising funding costs are expected to dent business investment, especially in machinery and equipment. Consistent with a weakening global outlook, goods exports are set to slow down. By contrast, services exports are likely to benefit from further normalisation of international tourism flows.
The sharp rise in energy and food prices coupled with persistent supply bottlenecks are spurring consumer prices. HICP headline inflation is forecast to climb to 7.4% this year and to average 3.4% in 2023. While price pressures from tight markets for energy raw materials are expected to ease only next year, the severe drought in northern Italy is likely to aggravate the surge in food prices for consumers. Wage pressures are set to increase over the forecast horizon. However, the pass-through of higher consumer prices into labour costs is expected to occur only partially and with a lag, given the long duration of wage agreements currently in force and the remaining slack in the labour market. Still, core inflation is projected to pick up strongly this year and to remain close to headline inflation in 2023.