Italy’s economy stagnates in Q3, but inflation slows sharply

ROME, Oct 31 (Reuters) – Italy’s economy stagnated in the third quarter from the previous three months, preliminary data showed on Tuesday, a weaker-than-expected reading following a 0.4% contraction in the second quarter.

On a year-on-year basis, gross domestic product in the eurozone’s third-largest economy was flat, national statistics office ISTAT said.

A Reuters survey of 24 analysts had forecast a 0.1% quarterly increase and a 0.1% like-for-like rise from a year earlier.

Flash data showed Italy avoided a so-called technical recession by a whisker in the April to September period, defined by economists as two quarters of falling GDP.

Looking ahead, the outlook is clouded by interest rate hikes by the European Central Bank aimed at curbing inflation and geopolitical tensions linked to conflicts in Ukraine and, more recently, the Middle East.

Giorgia Meloni’s government is struggling to meet policy conditions set by the European Commission to transfer billions of euros of Covid-19 pandemic recovery funds, and is behind schedule in investing the money it has already received.

More positively, Italian inflation slowed sharply in October, ISTAT said in a separate report.

The country’s EU-aligned consumer price index (HICP) rose 1.9% year-on-year, following a 5.6% rate in September, to register its lowest estimate since July 2021.

Core inflation, excluding the volatile fresh food and energy sectors, rose to 4.5% in October, but was still lower than the previous month.

The Treasury last month cut its forecast for full-year 2023 GDP growth from 1.0% to 0.8% and next year’s forecast to 1.2% from 1.5%.

ISTAT said the flat GDP reading in the third quarter compared to the previous three months was offset by weaker domestic demand and positive net exports.

Its preliminary assessment gave no breakdown of the number of components, but said industry had expanded, services had stagnated and agriculture had declined.

The Bureau of Statistics said it was unchanged in the second quarter, with GDP contracting 0.4% in the quarter and increasing 0.3% year-on-year.

So-called „purchasing growth” at the end of the third quarter was 0.7%, meaning that if there had been no quarterly growth between October and December, full-year GDP would have increased by 0.7% compared to 2022.

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