The unexpected second-quarter contraction of the Italian economy was a setback for prime minister Giorgia Meloni’s administration as it seeks to maintain prosperity and reduce debt.
Compared to the prior three months, the gross domestic product decreased by 0.3%, which is significantly worse than the forecast of zero growth from Bloomberg’s experts survey.
Officials in charge of statistics claimed that the decline was caused by a decline in domestic demand, while net exports did not support growth. Particularly hard damaged were the industries and agriculture.
The results show how the third-largest economy in the euro zone is beginning to feel the effects of rising interest rates, declining export demand, and the withdrawal of fiscal support. GDP increased by 0.6% in the first quarter.
The figures also raise questions about its administration by Meloni’s alliance.
Just last week, she praised her government’s economic measures for generating 1.1% quicker economic growth this year than the 1.0% increase forecast by France and Germany.
Giancarlo Giorgetti, the finance minister, claimed just last month that the economy may rise by as much as 1.4% in 2023, helped along by a surge in tourism during the first full summer season since the pandemic.
The second half of the year may see Italy benefit from that effect, but the global industrial downturn, which is being driven by China, is already having a negative impact on the German economy.
A study of purchasing managers earlier this month revealed that in June, Italy’s factories saw their worst month since the height of the pandemic lockdowns in early 2020. Data for July that are due on Tuesday might demonstrate that.
Later on Monday, the euro zone will release figures on the second quarter’s gross domestic product (GDP), with France and Spain reporting growth on Friday and Germany emerging from its winter recession, though with unchanged production.
The European Central Bank is apprehensive, in addition to the ongoing conflict in Ukraine and the fragility of export markets like China.
The most severe period of monetary tightening in its history is coming to a close, but it’s uncertain whether or when there will be another boost.
It will be more challenging for Meloni to control Italy’s enormous national debt as a result of weaker growth forecasts and increasing borrowing costs.
The debt-to-GDP ratio is still at 140%, and the European Commission expects little change in that ratio over the next year.
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