World Economy

Italy Striving to Regain Lost Ground

Exports rose in the second quarter.Exports rose in the second quarter.

Italy is working hard to shake off the sick man tag. Through government tensions, bank rescues and a migrant crisis, business sentiment has improved and the economy managed to maintain consistent growth after multiple false dawns.

A report on the second-quarter economic expansion this week is expected to top off a streak of encouraging numbers ranging from the labor market to exports, Bloomberg reported.

Yet, the country still has challenges from a drought that hit farming and—longer term—a less favorable monetary policy and elections next year that may produce a hung parliament.

The gross domestic product probably rose 0.4% in the three months through June, economists forecast, matching the pace of the previous quarter. That gain would boost expectations that full-year growth could top 1% for first time since 2010, helping the economy regain ground lost in the financial crisis of a decade ago.

Italy’s recovery from a record-long recession is still lagging behind growth in eurozone peers Germany, France and Spain, while the economy faces more uncertainty in the coming months. Elections are due in the first half of next year and about the same time the European Central Bank is expected to start rolling back its stimulus, progressively reducing its purchase of Italy’s government bonds.

Finance Minister Pier Carlo Padoan has downplayed the effect of less expansionary monetary conditions, telling SkyTg24 television on August 3 that the economy is strong enough to withstand higher interest rates and bond yields.

According to the UniCredit economist Loredana Federico, a 0.4% quarterly growth pace would help Italy reduce its debt ratio, which at more than 130% of GDP is the second highest in the eurozone. “It would certainly allow it to weather the possible difficulties of higher debt-financing costs” as quantitative easing ends, she said.

Last month, the IMF said Italy could grow about 1.3% this year, 1% in 2018 and 0.9% 2019. Recent economic reports supported the view that the economy is on the mend.

A measure of private-sector activity is near the highest in a decade, and industrial production expanded a seasonally adjusted 1.1% in the second quarter. Unemployment fell to 11.1% in June, matching the lowest since 2012.

Exports rose in the second quarter as stronger sales of goods and services to other European Union nations offset a drop to the rest of the world. An unfavorable exchange rate, with the euro up about 12% against the dollar this year, could weigh on global demand.


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