Italy’s record-long recession extended into a ninth straight quarter as the preliminary estimate of Q3 GDP (released after our survey deadline) reported a 0.1% (q-o-q) contraction, suggesting that the modest Euro zone recovery is bypassing its third-largest economy. Activity in 2013 has been impeded by depleted domestic demand, including weak investment, due to tight credit conditions. Our panel expects GDP to decline by this year before a muted turnaround in 2014. Retail sales rebounded by 0.2% (y-o-y) in August, their first annual gain since March 2012. However, hopes of a sustained revival in consumer spending were dampened as the jobless rate unexpectedly edged up to 12.5% in September, from 12.4% in August. The youth unemployment rate climbed to a historic high of 40.4% over the same period, justifying prime minister Enrico Letta’s warnings of the economic risks of a lost generation of young Italians who are moving abroad in search of work. Elsewhere, industrial production shrank by 3.0% (y-o-y) in September following a 4.6% fall in August. Industrial data for Q3 failed to mirror relatively upbeat business surveys, and so while the PMI for manufacturing remained in positive territory at 50.7 in October, it remains to be seen if output will fully regain momentum in Q4. In a welcome boost, foreign trade contributed positively to activity in August as resurgent EU demand helped exports rebound by 1.7% (m-o-m).
Despite a 1%-point hike in VAT, consumer price inflation sank to a four-year low of +0.7% (y-o-y) in October. The ECB reduced its refinancing rate to a record-low 0.25% earlier this month, somewhat allaying concerns that falling prices and a strong euro could hurt Italian growth.
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