Disinflation is back in Italy. After rising slightly in March (1.2% y/y; +0.4 pp over one month), inflation fell back below the 1% mark in April (0.9% y/y), mainly due to the still significant deflation in the energy component (-12.2% y/y). Although it is falling, inflation in services remains strong (+3.1% y/y; -0.2 pp over one month), keeping core inflation at 2.2%. Nevertheless, disinflationary trends in consumer prices are set to continue, with the evolution of production prices still negative (-9.6% y/y in March).
The labour market continues to set new records. The volume of employment (23,849 million) reached an all-time high in March, and the unemployment rate (7.2%) has returned to its level of fifteen years ago. In addition, the growth in negotiated wages (3% y/y in March), which outstripped inflation, should restore purchasing power to households and support domestic consumption. For the time being, however, the effects remain mixed: new vehicle registrations rebounded sharply in April (+7.5% y/y), but retail sales volumes fell in Q1 (-0.4% q/q).
These positive factors did not, however, lead to an improvement in household confidence; it deteriorated again in April (-19.1; -2.3 points over one month), mainly as a result of increasingly sharp deteriorations in the components relating to expectations of the financial situation (-2.2 points over a month) and the economic situation (-5.9 points over a month) over the coming year.
The composite PMI remains in the expansion zone at 52.6, but it also weakened in April (-0.9 points), mainly as a result of a sharp deterioration in the manufacturing PMI. After returning to the expansion zone for the first time in a year in March, the latter slipped back to the contraction zone in April (47.3) due to low levels of demand and production. The Services PMI, on the other hand, continues to report strong growth in the sector (54.3). Demand remains high but is accompanied by a sharp rise in input prices. For all that, companies remain optimistic about the future of the sector (66.9).
Following growth of 0.3% q/q in Q1 2024, we expect Italian real GDP to grow at the same pace in Q2. Over 2024 as a whole, we expect Italian growth to remain slightly above that of the eurozone (0.8% y/y), reaching 1.1% on an annual average.
Article completed on 24 May 2024
