Italian Economic Growth Slows In Warning Sign Before Vote

(Bloomberg) -- Italy’s economic growth slowed in the final quarter of 2017, leaving it lagging behind France and Germany and providing a note of caution ahead of general elections next month.

The 0.3 percent pace was weaker than the previous three months and below the 0.4-percent median forecast in a Bloomberg survey. It leaves full-year expansion at an estimated 1.4 percent, statistics office Istat in Rome said Wednesday, less than the government’s recent estimate of 1.5 percent.

Italian Economic Growth Slows In Warning Sign Before Vote

While the government can point to continued growth as a sign that its policies are working, opposition parties are focusing on the fact that the recovery isn’t being felt evenly. With the election less than three weeks away, issues such as job security, tax burden and immigration remain high in the political debate.

The fourth-quarter growth was limited by “a fall in the added value of agriculture” while manufacturing and services rose thanks to the domestic demand and exports, Istat said in the report.

Italy’s expansion in the three months compares with 0.6 percent in both France and Germany, the euro area’s two biggest economies. The 19-nation bloc’s economy kept a robust growth pace at the end of 2017, setting the stage for another solid performance in 2018 that may sway European Central Bank policy makers into winding down unprecedented stimulus. GDP increased 0.6 percent from the previous three months, Eurostat reported Wednesday, confirming a Jan. 30 estimate.

‘Below Expectations’

Italy’s “reading is below expectations, though it doesn’t change our view that the economy remains on a solid footing led by domestic demand, in particular private consumption, and by a lesser extent also by investments,” Barclays Plc senior European economist Fabio Fois said.

Italy’s FTSE MIB Index of stocks pared gains seen shortly before the release of the GDP data, and was little changed at 12:11 p.m. Rome time. The country’s 10-year bond yield was also little changed at 2.06 percent as its spread with equivalent German bunds narrowed 1 basis point to 132 basis points.

The Istat report comes before general elections that opinion polls project will end in a hung parliament, with the risk of a repeated vote within few months. Istat will release a preliminary estimate of the GDP growth for full-year 2017 on March 1, three days before the election.

The euro region’s third-biggest economy will expand 1.5 percent this year, the European Commission said in a report last week. That means Italy will lag behind all euro-area  member nations this year.

“Even though Italy’s economy expanded more slowly than expected in the final quarter of 2017, the speed of growth was still fast enough to chisel away at spare capacity. Plenty of work remains to be done, but the economy should continue the long process of healing from the euro crisis next quarter,” Bloomberg economists including David Powell and Jamie Murray said.

Italy’s industrial production rose 0.8 percent in the fourth quarter, Istat said in a separate report earlier this month. It showed a 1.9 percent growth in the output of machinery and equipment over the period that economists say was made possible by increasing domestic and foreign demand.

The Italian economy rose 1.6 percent in the fourth quarter from the same period of 2016, Istat also said.

©2018 Bloomberg L.P.