Italy's Barbieri Hopeful of `Upside Surprise' in 2Q GDP Data

(Bloomberg) -- Italy’s economy may have avoided a slowdown in the second quarter thanks to a strong performance from the labor market and industry, according to the finance ministry’s top economist.

Given the pickup in employment and “very positive figures on industrial turnover,” Riccardo Barbieri said he is “hopeful of an upside surprise” and expansion could match the 0.3 percent pace of the first quarter. The Bank of Italy said last week growth may have weakened to about 0.2 percent in the April-June period.

“There is no reason to expect a marked slowdown in Europe,” Barbieri told Bloomberg on the sidelines of a banking conference in Berlin on Wednesday. “There is scope for the expansion to continue,” especially given the European Central Bank’s guidance that its “ultra-accomodative” monetary policy will remain in place well into next year, he said.

Prime Minister Giuseppe Conte said the euro single currency is “irreversible” for Italy, in an interview published Thursday by newspaper il Fatto Quotidiano. He added that the nation’s public debt is “high but sustainable,” according to the newspaper.

Italy has suffered from years of near-stagnation and the European Commission confirmed last week it expects the country to have the slowest growth rate in the 19-nation euro region this year and next. The Bank of Italy expects expansion of 1.3 percent this year and 1.0 percent in 2019.

Statistics agency Istat will release the preliminary reading for Italy’s second-quarter GDP growth on July 31.

Biggest Risk

The economy would need to accelerate in the second half if expansion is to match the 1.5 percent pace of 2017, Barbieri said. The ministry is likely to revise down its growth forecasts for this year and next when they are updated at the end of September, he added, saying escalating global trade disputes and their impact on business sentiment are the biggest downside risk.

The ministry’s forecast for GDP growth in 2018 will probably be trimmed to around 1.3 percent, from 1.5 percent seen in April, and its prediction for next year’s expansion to 1.1 percent, from 1.4 percent, Barbieri said.

The former JPMorgan Chase & Co. and Bank of America-Merrill Lynch economist also addressed recent speculation that Italy could abandon the euro, saying it was a “diversion” and noting that Finance Minister Giovanni Tria has been “very clear” about the government’s priorities.

The ministry will focus on helping to enact, as far as possible, government policies such as a basic income and tax cuts, while attempting to promote competitiveness and productivity, Barbieri said.

Italian bond yields rose in late May and early June as financial markets were spooked by weeks of political uncertainty over the formation of a populist government. They rallied on Tuesday to push 10-year yields below 2.5 percent for the first time since May.

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