Italy Economic Outlook
GDP expanded 0.5% quarter on quarter in Q1, beating market expectations. Domestic and external demand fueled growth, benefiting from a strong Easter tourism season and lower energy prices. Momentum will likely moderate in Q2 due to the lagged constraining effects of the ECB’s interest rate hikes on credit availability, purchasing power and savings. That said, data is fairly positive so far. Business and consumer sentiment ticked up in April, as did the services PMI. However, in the same month, the manufacturing PMI fell into contractionary terrain, and inflation rose. Meanwhile, the government is overhauling investment plans for EU recovery funds and allegedly plans to deliver a revised proposal by the end of June. In other news, the Cabinet has opened the doors to talks with China about a potential exit from the Belt and Road Initiative in a bid to fortify relations with the U.S.
Harmonized inflation rose to 8.7% in April (March: 8.1%), mainly due to a sharper increase in prices for non-regulated energy products. Inflation should resume its downward trend ahead, curbed by cooling domestic demand and higher interest rates. The evolution of the euro’s strength and commodity prices are key factors to watch.