Confindustria, Italy’s growth continues, but is weighed down by inflation

Italy’s growth continues in the second quarter but at a more moderate pace, driven by services, while the situation of industry and construction is less solid. Inflation is persistent as expected, interest rates go up and loans go down. Mixed signals are coming from consumption, while investments are growing, even if only slightly. In general, there is weakness on the Eurozone front, while industry is picking up again in the USA. China slows down, India grows. This is what emerges from the monthly analysis of the economic situation carried out by the Confindustria study centre. Italy’s growth continues in the second quarter but at a more moderate pace, driven by services, while the situation of industry and construction is less solid. Inflation is persistent as expected, interest rates go up and loans go down.

Mixed signals are coming from consumption, while investments are growing, even if only slightly. In general, there is weakness on the Eurozone front, while industry is picking up again in the USA. China slows down, India grows. This is what emerges from the monthly analysis of the economic situation carried out by the Confindustria study centre.

Inflation data
Italian inflation therefore remains “persistent”: in fact, in April it interrupted its decline (+8.2% per annum, from +7.6%), but the downward trend will continue, thanks to the increasingly down (34 euro/mWh in May) and thanks to the increasingly full effects of the rate hike. However, food consumer prices remain in tension (+11.8%), but there will also be a gradual cooling effect for them, because raw materials are expensive but without further increases (in April +49% since 2019). The trend in consumer prices of core goods and services will continue to rise (+4.9%), incorporating past energy price increases. Rates up, loans down: the rate paid for loans by Italian companies jumped to 4.30% in March, more than triple the level at the end of 2021 (1.18%). Credit under much more onerous conditions, the Report reads, “makes the stock of business loans shrink more and more (-1.0% per annum in March)”.

This is why there is a lack of “support for production and investments”, note the economists of Confindustria looking at possible new rate adjustments by the ECB. Services drive and industry resists: tourism in Italy in the 1st quarter was much above the levels of 2022 (+30.7% spending by foreign travelers), around those of 2019, while industrial production decreased again in March (-0.6%), third consecutive decline, even if, thanks to the good legacy of December, it closed the 1st quarter only slightly negative (-0.1%) . But, Csc warns, the scenario is worsening: in April the PMI fell sharply into a contraction area (46.8 from 51.1) and in May, business confidence dropped again: fewer orders, lower expectations on the production.

Even foreign demand is no longer strong: Italian exports of goods stopped, on average, in the 1st quarter of 2023. Consumption: the signals coming from the sector are ‘mixed’. While the decline in sales of foodstuffs continued in March (-0.7%, in volume), car registrations have instead picked up from the beginning of the year, thanks to favorable demand after many months of contraction (+9.7% in the first 4 months). Among the positive factors, he still lists the CSC, the labor market which continued to expand in the 1st quarter (+80 thousand employed) even if for April the ICC reports a slight growth in consumption (+0.2% per annum), driven only by services (+4.5%). And in May, households’ assessments of their own economic situation worsened a bit, as did confidence in general.