Revised GDP data confirms Italian economic resilience in second quarter
The revision of Italy's second-quarter GDP data illustrates the economy's unexpected resilience, with a growth rate of 0.2%. Domestic demand was pivotal in this performance given that household consumption—and particularly service consumption—surged despite rising inflation linked to energy costs. Per the full note source, the anticipation for similar growth momentum in the third quarter looms, although inflationary pressures may dampen consumption resilience. This backdrop will keep traders focused on the EUR/USD trajectory, with market sentiment remaining cautious ahead of potential consumption disappointments.
What the desk is arguing
The latest GDP revision highlights Italy's economic robustness, supported by domestic consumption despite inflationary pressures. Per the full note source, a growth rate of 0.2% in Q2 indicates that the economy is navigating geopolitical and energy price challenges relatively well.
Strong household consumption, particularly in services, underpinned this growth, masking a noticeable drag from net exports which contracted due to burgeoning imports. As outlined, factors such as high employment rates and resilient consumer confidence may continue to buoy economic activity in the third quarter, albeit with inflation creating some headwinds for consumption.
Where it sits in our coverage
Our consensus target sits at 1.075 for EUR/USD, with firms like jpmorgan projecting a target of 1.10 by March 2026 and bofa holding a more cautious stance at 1.04 for the same tenor. This implies positions will need to navigate the upper range of market expectations as Italy's outcomes are seen to align with broader European growth trends.
How other firms see it
General sentiment among aligned firms, including jpmorgan and others, appears to lean towards a stable economic outlook for Italy, premised on domestic strength. Conversely, bofa remains skeptical, reflecting concerns regarding the sustainability of this growth in light of inflation.
Traders should monitor the EUR/USD pair closely as movements in domestic consumption and sentiment could reflect shifts in ECB policy, particularly as inflation dynamics evolve.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Italy's GDP grew 0.2% in Q2, driven largely by domestic consumption, particularly in services.
- 02Net exports detracted from growth, underscoring vulnerabilities in Italy's trade balance.
- 03Resilient consumer confidence offsets inflation impacts, but risks remain if spending falters.
- 04Consensus EUR/USD target sits at 1.075, signaling cautious optimism amidst inflationary pressures.
Market implications
Traders should closely watch the EUR/USD exchange rate as it may be influenced by upcoming domestic consumption data. The inflation situation is critical, as any sign of diminishing consumer confidence could prompt shifts in market sentiment significantly.
Risks to this view
The primary risk to this outlook is a substantial increase in inflationary pressures that could lead to a pronounced contraction in consumer spending. If consumption does disappoint, this could prompt downward revisions to growth expectations, impacting the euro negatively.
Older quick take Quick take Published 10:54 Italy Revised GDP data confirms Italian economic resilience in second quarter GDP expanded by 0.2%, supported by stronger domestic demand, while net exports acted as a drag. We expect a similar expansion in the third quarter, but the energy-driven acceleration in inflation increases the risk of a consumption disappointment Italy’s 2Q GDP grew by 0.2% Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Paolo Pizzoli Senior Economist, Italy, Greece GDP growth confirmed at 0.2% in second quarter, driven by domestic demand Preliminary GDP data for the second quarter had suggested that the Italian economy was proving surprisingly resilient to geopolitical developments and their impact on energy prices. Revised data, released today by Istat, confirms this was indeed the case, shedding additional light on the demand details.
Italian GDP expanded by 0.2% in the second quarter (from 0.3% in the first) driven by domestic demand. Household consumption and inventory accumulation contributed 0.2% to quarterly growth, followed by gross fixed investments (0.1% contribution), while net exports subtracted 0.3% as imports expanded faster than exports. Services consumption in the lead, followed by durables The consumption push came mainly from services, followed by durables, with the non-durable component coming in growth-neutral.
Here, the good news is that consumption held up despite a temporary deterioration in real disposable income resulting from the acceleration in energy-related inflation. Consolidating gains on the employment front and their impact on confidence seemingly acted as a powerful hedge. Infrastructure investment still powered ahead, as the deadline to recovery plan approached On the investment front there was a clear push from infrastructure investments, very likely reflecting a final rush as the official deadline for the recovery plan approached.
This more than compensated for the contraction in the residential component, which was still burdened by the reduction in tax incentives. The soft machinery and weapons components likely reflected a combination of a very gradual turnaround in manufacturing and delayed decisions on the government side to tap dedicated European SAFE funds. The gain in intellectual property products investment suggests that the Italian economy is also taking advantage of the AI-related global investment wave, but so far with a limited contribution to GDP growth.
We expect a similar pattern in the third quarter, but short-term inflation risks linger Looking ahead, confidence indicators for July and August and still resilient employment suggest that the economic expansion might continue at a similar pace and with a similar pattern over the third quarter. This is not immune to risk, though, primarily linked to the potential impact on consumption of accelerating inflation. August inflation data, also released today, showed that the energy component is still a powerful driver.
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