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News > Italy

Italian Economy Expected to Contract for 3 Consecutive Quarters

  • Italian workers burn utility bills.

    Italian workers burn utility bills. | Photo: Twitter/ @ciculatin

Published 4 October 2022
Opinion

The main factors pushing the economy into recession are rising energy prices sparked by the Ukrainian conflict and the resulting inflation.

On Monday, the Italian Treasuri announced that the national economy contracted in the third quarter of this year, with more negative growth forecast into next year. This means Italy could fall into recession just as the next government is launching its economic program.

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Italy's new parliament, elected in the Sept. 25 general election, will sit for the first time on Oct. 13. This will set the stage for a new government most likely dominated by the right-wing party Brothers of Italy, led by Giorgia Meloni.

Forecasts from the Italian Treasury show an economic contraction in the quarter ending Sept. 30, and at least two more quarters of negative growth. A recession is defined as two consecutive quarters of negative growth.

The current Italian government, headed by former European Central Bank chief Mario Draghi, said Friday that the economy performed better than expected in the first half of the year. It grew 1.1 percent in the quarter ending June 30 compared to the previous quarter, following modest 0.1 percent growth in the first quarter of the year. The second quarter was Italy's sixth consecutive quarter of growth since the first COVID-19 pandemic year of 2020.

However, the latest estimates from the Treasury say this situation changed in the third quarter of 2022. It predicted "slightly negative" growth levels for both the third and fourth quarter this year, with another decline expected over the first three months of 2023, followed by economic recovery starting in the second quarter of the year.

If the Treasury's predictions are accurate, it will be the first time the Italian economy has contracted for three consecutive quarters since the time period between the last quarter of 2019 and mid-2020.

The tweet reads, "Gas consumption in Italy is plummeting: from the point of view of international monetary reserves, this is good news, but it is very bad news because it heralds the arrival of the recession. Since September, the gas crisis has hit prices and consumption: -15.9% to a 20-year low. It also hit thermoelectrics (-17.8%), other industries (-22.5%), and civil construction (-9.4%). Imports go in the opposite direction (+1.7%) and support storage (+144%). Russia -80%."

The main factors pushing the economy into negative territory are rising energy prices sparked by the conflict between Russia and Ukraine, and the resulting inflation that is weighing down industrial production.

In September, Italy's consumer price index rose by 8.9 percent compared to a year earlier -- the largest one-month increase in prices since 1983, according to the latest data from Italy's National Statistics Institute (ISTAT). The four largest increases in Italy's year-on-year inflation rate have all been in the last four months.

Consumer and business confidence have also taken a hit, ISTAT said last week, meaning individuals and companies are less likely to spend money.

The Standard & Poor's Manufacturing Purchasing Managers' Index, or PMI, was at 48.3 points in September, a slight improvement from 48.0 points in August but still the third consecutive month it was below the 50-point threshold that separates growth from contraction.

The new economic growth estimates from the Italian Treasury represent a challenging starting point for the next government, which will have to contend with continued inflation, a global economic slowdown, and lower-than-usual energy supplies due to the crisis in Ukraine.

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