FICHT RANKING * ECB MONETARY POLICY: « WE HAVE AGAIN REDUCED OUR GROWTH FORECAST FOR ITALY, TO 0.7% IN 2023 AND TO 0.6% IN 2024 » (REPORT PDF)

Italy – We have again reduced our growth forecast for Italy, to 0.7% in 2023 and to 0.6% in 2024.

This is partly the result of disappointing incoming data. The economy avoided a contraction in 3Q23, but grew by much less than expected after a sharp contraction in 2Q23. The inventory cycle made a large negative contribution. Consumption grew by 0.7%, the fastest since 3Q22. Our forecast for 0.6% growth in 2024 relies on an improvement in sequential growth, led by consumption.

Investment slipped by 0.1% in 3Q23 and we now expect investment to decline in 2024 from high levels. Household investment, which accounts for around a quarter of investment, was a growth driver in 2022 but has since faded. It declined steeply in 2Q23, and then grew quarter on quarter, but was still 5.6% lower yoy in view of the phasing out of government incentives for household renovation.

We expect public investment helped by the NextGenerationEU- funded National Recovery and Resilience Plan (Piano Nazionale di Ripresa e Resilienza, or PNRR) programme to pick up, but not by enough to prevent a decline in investment in 2024. The 2024 budget postponed some PNRR spending. By 2025 we expect an acceleration in the spending of these funds. Other business investment is holding up, despite a sharp decline in credit to business, which contracted 6.2% yoy in October, and a steep rise in interest rates.

Employment is still growing relatively quickly, with the number in employment rising 0.4% qoq in August-October according to the labour force survey and by 2% yoy. The unemployment rate rose to 7.8% in October; the share of the population that is economically inactive is falling; participation is rising. Our forecast is for the unemployment rate to decline slightly given slow population growth.

The annual rate of inflation fell to just 0.7% in November. The annual decline in energy prices reached 25% and stripped 2.6pp from the annual rate. Core inflation fell to 3.4%. We expect core inflation to continue to decrease while the headline rate is likely to rise in 1H24.