Italy back in recession as Eurozone stutters

Italian economy sinks into recession with disagreement and uncertainty between Italy's populist government and EU over budget proposals, meanwhile Germany drags down eurozone economy whilst Spain and France exceed growth expectations.

David Sapsted

31 January 2019

Italy slipped back into recession in the final six months of last year amid sluggish growth through much of the eurozone, official data showed on Thursday.

Italian economy shrinks by 0.2 per cent

The Italian economy shrank by 0.2 per cent in the final quarter of 2018 after a 0.1 per cent decline in Q3, according to Istat, the government's statistical bureau.Istat reported, "The quarter-on-quarter change is the result of a decrease of value added in agriculture, forestry and fishing as well as in industry and a substantial stability in services."From the demand side, there is a negative contribution by the domestic component (gross of change in inventories) and a positive one by the net export component."

Eurozone GDP growth down mainly as a result of slowdown in German economy

Meanwhile, GDP growth in the eurozone amounted to 0.2 per cent, representing growth over the year of just 1.2 per cent, mainly as a result of a slowdown in the powerhouse German economy.Italian Prime Minister Giuseppe Conte suggested a global downturn prompted by the US-China trade war was primarily responsible for his nation's woes but Andrea Iannelli, investment director at Fidelity International, said Italy's recession was prompted by problems at home, as well as abroad.“The latest Italian GDP numbers may come as no surprise to investors, but it does highlight the challenges that still lie ahead for the country and the coalition government," she said."The slowdown in the country’s major trading partners are partly to blame. However, the standoff between the government and the European authorities over the budget in the summer of 2018 has exacerbated the country’s weaknesses."

Budget standoff between Italian and EU leaders shows economic weaknesses

Italy's Deputy Prime Minister Luigi Di Maio, head of the populist Movement Five Star, said the recession was proof that Europe’s budget rules should be relaxed to allow Italy to stimulate its economy back to growth.The Guardian reported, "He’s clearly still unhappy that Rome’s attempts to run a deficit of 2.4 per cent of GDP this year were blocked by the EU. Di Maio said the previous centre-left government - ousted this spring - was to blame for the recession."But James Athey, an economist at Aberdeen Standard Investments, commented, “The growth forecasts on which the budget was based have already been blown out of the water and euro-zone growth continues to weaken. Italy is going to have to face up to some real problems.”

France and Spain post higher than expect GDP growth

Across the rest of the eurozone, the sluggish growth came much as expected, although two economies - France and Spain - posted higher than expected growth. France GDP rose 0.3 per cent in the final quarter of the year while Spain's rose 0.7 per cent.Overall, though, the 19-nation eurozone was held back by the unexpected slowdown in Germany, where growth was stymied by faltering car sales, and uncertainty caused by the UK's exit from the EU.Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, said that the data for the eurozone as a whole "don't look pretty, but have been well telegraphed by the hard data and the financial market horror show in Q4".He added, "Indeed, it seems to us that markets will be inclined to look at these headline [figures] as good news. They indicate that things probably won't get much worse in the near term - this is a bold assumption, given poor January survey data - and that the ECB will keep rates low for a long time."Relocate’s new Global Mobility Toolkit provides free information, practical advice and support for HR, global mobility managers and global teams operating overseas.Access hundreds of global services and suppliers in our Online DirectorySubscribe to Relocate Extra, our monthly newsletter, to get all of the international assignments and global mobility news.

©2024 Re:locate magazine, published by Profile Locations, Spray Hill, Hastings Road, Lamberhurst, Kent TN3 8JB. All rights reserved. This publication (or any part thereof) may not be reproduced in any form without the prior written permission of Profile Locations. Profile Locations accepts no liability for the accuracy of the contents or any opinions expressed herein.