Italian Economy Barely Expands, Casting Doubts on Outlook

  • Industrial output fell in December for second straigth month
  • Weak growth, low inflation make debt-cut target difficult

Italy’s economy expanded in the fourth quarter below economists’ expectations and at the slowest pace in a year, prompting concerns that the recovery from the country’s longest recession since World War II might falter in coming months.

Gross domestic product rose 0.1 percent in the three months through December, Rome-based statistics agency Istat said in a preliminary report on Friday. That was below the 0.3 percent estimate of 22 analysts in a Bloomberg survey. GDP expanded 1 percent from the same quarter of 2014 while its non-seasonally adjusted growth last year was 0.7 percent, the report said.

“Data are weaker than what we expected and signal a potential lack of rebound in investment activity, which is a key factor in supporting a sustainable recovery,” said Giada Giani, an economist at Citigroup Inc. in London. “Growth significantly slowed down during 2015, posing downside risks to our forecast for economic growth this year.”

Industrial output in the euro region’s third-biggest economy fell for a second month in December as companies grew pessimistic about the outlook for manufacturing activity despite limited improvements in both labor market and consumer demand. Weaker than expected GDP growth and price dynamic might jeopardize Prime Minister Matteo Renzi’s goal of reducing the GDP ratio of Italy’s public debt which climbed in November to 2.21 trillion euro ($2.49 trillion).

Difficult Target

Delays in the plan for sale of state-owned assets might make that target even more difficult. On Thursday a Treasury official said the government might review the plan size and content after reports saying the Italian railway company is set to postpone an initial public offering scheduled for this year.

Still, Finance Minister Pier Carlo Padoan said in an interview earlier this week that the debt-to-GDP will decline in 2016 "given the real growth and possibly given a bit more inflation, that is beyond our control of course."

Padoan cited Feb. 4 forecasts by the European Commission saying that the ratio will drop to 132.4 percent this year from 132.8 percent in 2015, marking the first decline after eight years of growth.

The pace of Italy’s GDP quarterly expansion progressively slowed down from 0.4 percent in the first three months of 2015 to 0.2 percent in the third quarter.

Reflecting investor concerns on the euro region’s higher-debt nations, the yield difference, or spread, between Italy’s 10-year bonds and equivalent German bunds climbed to 153 basis points on Thursday, up from 126 basis points at the end of last week.

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