Italian Economy Unexpectedly Stagnates in Threat to Renzi

Updated on
  • Second-quarter industrial output fell most in almost two years
  • GDP remains about 8 percent below its pre-crisis peak

The Challenges Facing Italy and Renzi Aren't Shrinking

Italy’s economy unexpectedly stalled in the second quarter, which will further weigh on Prime Minister Matteo Renzi as he prepares for a referendum on which he has staked his political future.

Gross domestic product was unchanged in the three months through June, Rome-based statistics agency Istat said in a preliminary report on Friday. That compares with the 0.2 percent median estimate in a Bloomberg survey of 25 analysts. The economy grew 0.7 percent from a year earlier.

The Bank of Italy and the International Monetary Fund have both revised down their economic outlook, predicting growth of less than 1 percent this year. Political uncertainty ahead of a referendum that’s threatening to topple the government, and banks’ high share of non-performing loans, are weighing on domestic demand, while trade is damped by clouding global prospects and a looming recession in the U.K. following its Brexit vote.

The GDP report "is a blow, there is no question about it," said Marc Ostwald, a strategist at ADM Investor Services International Ltd. in London. "It really underlines what a difficult spot Renzi finds himself in now."

Premier Renzi has staked his political fate on a referendum which aims to give Italy a more stable government by curtailing the powers of the Roman Senate. He is expected to call the vote in November.

German growth slowed less than analysts predicted in the second quarter, the Federal Statistics Office in Wiesbaden said earlier on Friday. GDP in the euro region’s largest economy rose a seasonally-adjusted 0.4 percent, twice the rate forecast in a Bloomberg survey.

While cheaper oil, a weaker euro and unprecedented stimulus by the European Central Bank helped the Italian economy to emerge last year from its longest slump since World War II and expand for five straight quarters, output remains about 8 percent below its pre-crisis peak. The euro region has regained that level and its main economies, France and Germany, have long surpassed it.

In Italy, unemployment remains above 11 percent and unexpectedly increased in June. Industrial production declined the most in almost two years in the second quarter, Istat said in a separate report last week.

— With assistance by John Follain, and Giovanni Salzano

(Adds strategist comment in fourth paragraph.)
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