Italy’s Economy Stuck in Slow Lane Even After GDP Tops Forecast

(Bloomberg) --

Italy’s economy barely grew in the third quarter as the country continues to struggle amid political instability and a near-record debt level.

Gross domestic product expanded 0.1% during the period, statistics office Istat said Thursday. The figure was better than economists had forecast, and the second-quarter performance was revised higher to also show growth.

The overall sluggish performance is forecast to persist, however. The euro-area’s third-largest economy will record hardly any growth this year, though the coalition government in Rome aims to boost that to 0.6% in 2020 with a budget aimed at encouraging investment and reducing labor taxes.

A pickup could prove more difficult if the slowdown that’s taken hold across Europe worsens. Expansion in the euro area held at 0.2% in the third quarter, but manufacturing is in a slump and Germany is probably in a technical recession.

Speaking at a banking conference in Rome Thursday, Bank of Italy Governor Ignazio Visco highlighted the pressure on the economy from industry.

“Manufacturing suffered greatly from the negative impact of the global economic outlook, from close production and trade links with Germany,” he said. “Weakness was likely offset by a small expansion in services and construction.”

The administration led by Prime Minister Giuseppe Conte, which includes former rivals the Five Star Movement and the Democratic Party, is struggling to compromise on which measures to prioritize in the spending draft, which has already raised some flags in Brussels for its 2.2% deficit target.

Debt is at a record high, and the European Commission is expected to issue an initial assessment of the budget by Nov. 30. The Italian parliament will need to approve it before the end of the year.

The coalition is also facing attacks by League party leader Matteo Salvini, who has been calling for new elections following a victory in regional elections in Umbria last Sunday.

Italian President Sergio Mattarella would call immediate elections if current tensions between the ruling parties lead to a government collapse, daily la Repubblica reported Wednesday.

To contact the reporters on this story: Chiara Albanese in Rome at calbanese10@bloomberg.net;Alessandro Speciale in Rome at aspeciale@bloomberg.net

To contact the editors responsible for this story: Chad Thomas at cthomas16@bloomberg.net, Fergal O'Brien, Jerrold Colten

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