World Economy

Italy Economic Recovery Stalls

Italy Economic Recovery StallsItaly Economic Recovery Stalls

Italy’s economy stagnated between April and June, a second GDP reading has confirmed, dealing a blow to the country’s prime minister, Matteo Renzi, as campaigning steps up ahead of a key referendum in the autumn on constitutional reform.

The country’s statistics agency, Istat, confirmed on Friday that Italy’s economic recovery ground to a halt in the second quarter, having eked out growth of 0.3% in the first three months of the year. Economists had originally expected growth of 0.2% in the second quarter, Bloomberg reported.

Year-on-year Italy’s economy grew 0.8% in the second quarter, a slight improvement on the previous estimate of 0.7% growth.

“Italian growth is slowing quite sharply,” noted economists at Citi.

“This is quite surprising given still very supportive monetary policy and the loosened fiscal stance. We had expected the fiscal incentives introduced with the 2016 budget would have supported a more vigorous recovery business investment. Sharp declines in equity prices and related concerns about the stability of the banks are probably weighing on consumption and investment decisions, via negative wealth effects, in our view.

“In addition, the export slowdown probably also affected investment decisions. Recent survey-based indicators do not point to much improvement in activity over the coming months, with the manufacturing PMI falling into contractionary territory in August. The 2016 growth will at best average 0.7%, in our view, and 2017 average growth will likely to be lower than that (we currently project 0.3%).”

Italy wasn’t the only country in the eurozone to suffer a bad second quarter–France’s economy also came to a standstill between April and June–but the timing of the data is bad for Renzi, who has staked his political future on November’s referendum.