Italian Economy to Slow Down in 2019-2020

The Italian economy slowed down slightly in the first half of the year amid international trade tensions and the growing spread between the country’s benchmark 10-year government bonds and their German counterparts.

That differential added 100 points since national elections in early March that resulted in a prolonged political deadlock which finally produced a populist, euroskeptic coalition government that was seated in early June, Xinhua reported.

The bigger the spread, the lower the investor confidence and the higher the interest rates the country has to pay to borrow money.

The spread, which hovered at 130 basis points in March, has since risen to 230 basis points and above.

National gross domestic product added 0.3% in the first quarter and is expected to do the same in the second quarter, down from average quarterly growth of 0.4% in 2017, ISTAT national statistics institute said in its May forecast for the Italian economy.

In its June bulletin, the Bank of Italy saw the economy growing by 1.4% this year, then slowing to 1.2% in 2019-2020. The International Monetary Fund forecast 1.5% growth in 2018, decelerating to 1.1% next year and 0.9% in 2020, according to data collected by the Italian central bank.

In comparison, ISTAT said, the eurozone GDP grew by 2.4% in 2017 (against 3.8% for the global economy) and is expected to expand by 2.3% this year.

A decade after the international financial crisis that drove the country into years of recession, Italy unlike almost all the other eurozone states is still far from returning to pre-crisis levels.

“Industrial production is 17 percentage points below 2008 levels, the unemployment rate is more than 5 points above the pre-crisis minimum, and (economic) inequality has increased markedly,” newly seated Economy Minister Giovanni Tria told the Lower House of parliament in mid-June.

As well, rising protectionism on international markets as US-imposed trade barriers prompted China and the European Union to respond in kind have already had negative fallout on the macroeconomic level.

“The protectionist tensions that arose in recent months have already slowed down the significant growth of international trade posted in 2017, cooling the confidence of European and Asian manufacturers,” the minister said.