The Italian economy surprised positively in the first quarter of 2023, with real GDP growing by 0.6% q/q. However, we expect this good performance to be followed by a slowdown in the second quarter and then a one-off contraction in the third quarter. Retail sales in volume have been gradually decreasing since the beginning of the year. In addition, high inflation will continue to affect household purchasing power.
The rate of inflation in Italy (+8.0% y/y in harmonised terms in May) remains among the highest in the eurozone, mainly due to a sustained rise in energy prices (+11.5%). Nevertheless, the drop in headline inflation should accelerate over the summer. Indeed, energy prices have been falling sharply month-on-month since the beginning of the year, and this drop will gradually bring down the year-on-year rate (i.e inflation rate).
The decline in industrial activity intensified in April, driven by the fall in the production of intermediate goods (-13.8% year-on-year), which now stands at its lowest level since summer 2020. The signals sent out by business surveys confirm the ongoing deterioration in the sector: the manufacturing PMI fell from 48.7 in April to 46.4 in May, a level similar to the one reached in 2020.
Nevertheless, the labour market remains buoyant. This, together with consumer price inflation, is fuelling wage growth. However, the latter remains moderate, with Istat reporting an increase in the basic hourly wage of 2.6% year-on-year in April. The rise in wages is likely to become more pronounced in the coming months, if the unemployment rate continues to fall and labour shortages increase. The latest quarterly survey by the European Commission, which aims to assess the main obstacles to production, reinforces this finding: the index relating to labour tensions was at its highest since the first quarter of 1990. Indeed, the unemployment rate for the working population as a whole fell to 7.8% in April, while the rate for young people (15–24 years old) is approaching the symbolic threshold of 20% (20.3% in April), which is a level comparable to the ones seen before the 2008 crisis. Employment also rose for the fifth consecutive month; it has now exceeded the previous peak reached in summer 2019 by nearly 1%.
Guillaume Derrien (article completed on 20/06/2023)
