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Economy and Finance

Economic forecast for Italy

The latest macroeconomic forecast for Italy. 

Italy’s economic growth started slowing down last year, halting the post-pandemic rebound which had lifted growth to 7.0% in 2021 and 3.7% in 2022. After a pick-up in the first quarter of 2023, GDP decreased by 0.4% q-o-q in the second quarter, driven by falling domestic demand, particularly investment in construction. The phasing out of the extraordinary and temporary incentives for building improvements decided during the pandemic, which pushed construction activity up sharply in the past two years, contributed to this development. Some short-term indicators, including industrial production, that had been worsening for several months levelled off during the summer, suggesting a marginal rebound in the second half of the year. Overall, GDP is forecast to grow by 0.9% in 2023 and 0.8% in 2024, entailing a 0.3 pps. downward revision in each year.

GDP growth (%, yoy)3,70,90,8
Inflation (%, yoy)8,75,92,9

Consumer spending was held back by households’ lower real disposable income during the past year’s high inflation, as previously accumulated savings dwindled. A very gradual increase in wages, together with still favourable employment conditions, is expected to underpin a modest uptick in private consumption throughout 2024, despite the planned expiry of all temporary income-support measures. Labour participation rates are expected to stabilise after the robust growth recorded until mid-2023. Investment activity is set to contract in the remainder of 2023 and then pick up moderately in 2024, as the fall in housing construction is offset by RRF-supported increases in investment in infrastructure and equipment. Net exports are projected to provide a smaller support to growth in 2024, following a positive contribution in 2023.

HICP inflation is projected to moderate to 5.9% in 2023 and 2.9% in 2024. While energy prices eased during the first months of 2023, they are not expected to continue exerting downward pressure on inflation in 2024, also due to the planned phasing out of temporary measures adopted to mitigate the impact of high energy prices. Higher average consumer prices are expected to pass through into labour costs only partially and with a substantial lag. This is due, on the one hand, to the long duration of wage agreements and negotiations, and, on the other hand, to the indexation of contractual wages to a measure of domestic inflation that excludes the impact of imported energy inflation. As a result, HICP inflation excluding energy and unprocessed food is projected to exceed headline inflation in the next few quarters, as the prices of domestic goods and services are set to abate more gradually.