Istat indicated that domestic demand was growth neutral, whilst net exports were a drag on growth
August 6, 2014: Istat just released its flash GDP estimate, signaling that in 2Q14 the Italian economy fell back into technical recession.
According to Istat, the Italian GDP contracted 0.2% QoQ (from -0.1% QoQ in 1Q14) and 0.3% YoY. Breaking tradition, Istat provided some information about the demand breakdown, indicating that domestic demand was growth neutral, whilst net exports were a drag on growth. The press release added that the value added contracted in industry, services and agriculture.
Earlier on Wednesday, Istat had released June industrial production data, which had provided a temporary comfort.
In June, the Italian industrial production was up 0.9% MoM in SA terms, partially overturning May’s unexpectedly strong 1.2% contraction. The breakdown by big aggregates had shown that consumer goods (+2.5% MoM) and investment goods (+2.6% MoM) had driven the rebound, followed by the production of energy (+0.3% MoM), with that of intermediate goods in slight contraction (-0.2% MoM). In June, the index of industrial production was 25% lower than the August 2007 pre-crisis peak.
Lacking the detailed demand breakdown, it is hard to single out the culprits for the poor GDP reading. However, a lack of re-stocking and poorer than expected exports seem good candidates to explain the surprise.
On the back of 2Q14 GDP data, a downwards revision to full year GDP forecast will inevitably follow. High frequency confidence indicators for July were all softening a bit but remained consistent with positive quarterly growth in 3Q14. However, confidence data have recently proved very unreliable indicators of the underlying state of the real economy, and prudence is thus of the essence. We had expected until Tuesday an average Italian GDP growth to the likes of 0.2% in 2014. After Wednesday’s release, that number might well turn negative.