Meloni file photo
Italy’s economy unexpectedly contracted in the second quarter, a setback for premier Giorgia Meloni’s government as it tries to sustain prosperity and cut debt.
Gross domestic product shrank by 0.3% from the previous three months - much worse than the zero growth that analysts surveyed by Bloomberg had estimated.
Statistics officials attributed the slump to a drop in domestic demand, while net exports failed to contribute to growth. Industry and agriculture were particularly hit.
The data illustrate how activity in the euro zone’s third-biggest economy is starting to suffer from rising interest rates, weakening global export demand and the rollback of fiscal support: GDP had risen by 0.6% in the first quarter.
The numbers also cast a shadow over its stewardship under Meloni’s coalition.
Just last week, she touted the economic policies of her government as driving faster economic growth this year than France and Germany as predicted by the International Monetary Fund, with expansion of 1.1%.
As recently as last month, Finance Minister Giancarlo Giorgetti was claiming that the economy could achieve growth of as much 1.4% in 2023, buoyed by a tourist boom in the first full summer season since the pandemic struck.
That effect might yet aid Italy in the second half of the year, but the China-led global slowdown for manufacturing is taking its toll, just as it is hitting Germany’s economy too.
In June, Italy’s factories had their worst month since the height of the pandemic lockdowns in early 2020, a survey of purchasing managers showed earlier this month. Figures for July due on Tuesday may show that persisting.
The euro zone will publish second-quarter GDP data later Monday, with France and Spain reporting expansion on Friday, and Germany exiting its winter recession, albeit with output unchanged.
As well as the ongoing war in Ukraine and weakness in export markets like China, there’s uncertainty from the European Central Bank.
While the most aggressive bout of monetary tightening in its history is nearing an end, it’s unclear whether there’ll still be another hike - or when it may come.
Weaker growth prospects and higher borrowing costs will make it more difficult for Meloni to keep Italy’s mammoth national debt in check.
The debt-to-GDP ratio remains above 140% and is likely to remained little changed over the coming year, according to European Commission forecasts.
