After a modest expansion in Q1 2021, real GDP rose by more than 2.5% q/q in both Q2 and in Q3. This recovery was widespread. In Q3, net exports added 0.5 percentage point to GDP growth thanks to a stronger rise in exports than imports. Thanks to the easing of social restrictions, consumption has further increased, while favourable financing conditions and fiscal incentives have supported investment. During the summer, the recovery expanded to the services sector, which benefitted from higher tourist receipts. Manufacturing production has recovered entirely from the 2020 decline, ending up 2% higher than in Q4 2019. Labour market conditions are not as good as the recovery would suggest.
A more widespread growth
The Italian economy resumed growing at the beginning of 2021. After a modest expansion in Q1, the recovery has accelerated significantly, with real GDP rising by more than 2.5% q/q in both Q2 and in Q3. The growth carryover for 2021 as a whole is 6.2%. The speed of the Italian recovery is similar to that of other eurozone countries, which is different from past episodes when the Italian economy underperformed its partners. At the end of 2019, real GDP in Italy was about 5% lower than in 2007, while real GDP in Germany was almost 15% higher. In Q3 2021, Italy’s real GDP was 1.3% lower than the pre-pandemic level, a gap similar to that of Germany.
GROWTH AND INFLATIONIn Q3, the recovery of the Italian economy was widespread. Final domestic demand added 2 percentage points to GDP growth after a 3-points contribution in Q2. Net exports contributed 0.5 percentage point, with exports rising by 3.4% q/q and imports by 2.1% q/q. Since the beginning of the recovery, Italian exports rebounded strongly, reaching their highest level in history. From January to September 2021, exports rose by 20% with an expansion widespread across sectors and countries.
Thanks to the easing of social restrictions, consumption has further increased. In Q3, private expenditures rose by 3% q/q (after a 5% q/q increase in Q2). They remain however 3.6% below their Q4 2019 level, while gross disposable income has recovered in full. On the one hand, Italian households benefited from fiscal stimulus packages that were implemented during the crisis. But, on the other hand labour market conditions are not as good as the recovery would suggest. Employment sits at around 250 thousand less than in January 2020, while the number of people out of work has increased by around 75 thousand.
In Q3, financing conditions remained extremely favourable, supporting gross fixed capital formation, which rose by 1.6% q/q (after increases of 4.2% q/q in Q1 and 2.4% q/q in Q2). Contrary to private consumption, investment is back above its pre-crisis level: it is even 7% higher. Thanks to various fiscal measures, capital expenditures on construction and machinery and equipment rose by more than 10% compared to Q4 2019, while investment in transport equipment remains about one third below.
From manufacturing to services
At the beginning of the recovery, economic growth in Italy was mainly supported by the rapid rebound in the manufacturing sector, which recovered all of the lost ground during the 2020 crisis. The robust increase in exports contributed to this manufacturing performance. In Q3 2021, manufacturing production was almost 2% higher than in Q4 2019, with a strong increase in the sectors for electrical equipment, metal products, rubber, plastic and non-mineral products. By contrast, transport production declined significantly undermined by the global shortages in chips in particular, which led to an approximately 8% decrease in Q3 2021 compared to Q4 2019.
During the summer, the economic recovery gradually became more diffuse throughout the sectors, with services being the primary driver of economic growth. Gross value added (GVA) rose by 3.4% q/q (compared to +2.9% q/q in Q2), accounting for almost 2.5 percentage point of the overall increase. The services sector benefited from the recovery of the tourism industry: in Q3, purchases on domestic territory by non-residents more than tripled in real terms, despite remaining one third below Q4 19 level. GVA in the trade, transportation and accommodation sectors increased strongly too, by almost 10% q/q in Q2 and 8.6% q/q in Q3.
The construction sector’s recovery continued, albeit at a slower pace. GVA here rose by 0.6% q/q (following +5.4% q/q in Q1 and +3.4% q/q in Q2), equating to a 12% increase compared to Q4 19. The sector has benefitted from the fiscal incentives aimed to improve energy efficiency of buildings. Despite this recovery however, GVA is still nearly 30% below the 2008 level.
