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Italy: Economy sees strongest expansion in two years in Q1
GDP growth positively surprises markets: According to a preliminary estimate, GDP growth accelerated to 0.3% in seasonally and calendar-adjusted quarter-on-quarter terms in Q1 (Q4 2024: +0.2% qoq s.a.). The result marked the strongest expansion since Q1 2023 and exceeded market expectations.
On an annual basis, economic growth improved to 0.6% in Q1 from the previous period’s 0.5% increase and marked the best result since Q2 2024.
Domestic demand drives the uptick: Absent a full breakdown, the statistical office cited domestic demand—in particular a positive contribution from a change in inventories—as the main driver of the sequential acceleration. That said, it noted that net exports detracted from growth. On the production side, improvements in the agriculture, forestry and fishing sector plus the industrial sector outweighed a muted services sector outturn.
A complete breakdown will be released on 30 May.
Growth to cool in coming quarters: Our panelists expect sequential GDP growth to cool from current levels in Q2; heightened international trade uncertainty should cap exports. That said, robust wage growth and the ECB’s monetary policy easing cycle should support private spending—roughly one-third of households’ mortgages have variable rates.
Meanwhile, in 2025 as a whole, economic growth will hover around 2024 levels. On the one hand, exports are set to rebound on the back of stronger EU demand, and private consumption should pick up amid recovering real disposable income and the ECB’s easing cycle. On the other hand, fixed investment will contract amid uncertainty connected with trade tensions and the phasing out of residential building incentives. An EU-U.S. trade war is a downside risk.
Panelist insight: Commenting on the outlook, ING’s Paolo Pizzoli stated:
“Looking ahead, after the US tariff shock and still lacking a solution to geopolitical uncertainty, it would be scarcely prudent to extrapolate a continuation of the cyclical rebound over the second quarter. […] Having said that, a resilient labour market and decent wage growth (hourly wages were up 4% on the year in March) should, in principle, confirm private consumption as a potential growth driver for 2025. The extent to which this will materialise also depends on future inflation developments.”
