Italy: Improving Labour Market Bolsters Outlook


The Q2 national accounts (released on September 10) recorded a 0.3% (q-o-q) fall in GDP, down from the -0.6% figure reported in Q1 and stoking expectations of a return to growth later this year. The pace of decline in household consumption and gross fixed investment also slowed to -0.4% (q-o-q) and -0.3%, respectively. Shattered domestic demand has subtracted from activity throughout the current eight-quarter recession. Indeed, even in June of this year, retail sales continued to drop by a greater-than-anticipated 3.0% (y-o-y), and by 0.2% (m-o-m). However, an improving job market, together with rising consumer confidence and above-inflation wage growth, could support household spending over the coming months. The unemployment rate fell for a second successive month by 0.1%-points to 12.0% in July, suggesting that recent labour market reforms (which include tax breaks for firms that offer employees permanent contracts) could have encouraged some new hiring. Elsewhere, the PMI for manufacturing rose to a 27-month high of 51.3 in August, supported by a surge in new orders which reflected more robust export demand. However, the future of Italian politics remains somewhat in limbo, and prime minister Enrico Letta has warned that the collapse of his coalition would undermine any recovery. Silvio Berlusconi could be banned from holding political office again after losing his final appeal against a tax fraud conviction last month, fuelling speculation that his centre-right party could withdraw its support for the coalition. Still, our panel’s forecasts for 2013 GDP growth has edged up slightly this month – to -1.7%.

Inflation slowed to 1.1% (y-o-y) in August from 1.2% in July, owing to moderations in food and communication prices.

First Published: September 12, 2013.

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