The Italian GDP has declined in the second quarter by more than previously measured. Italy could be the next EU chip to fall.
Italy might be the next European economy to fall into a recession, as revised GDP data shows a more significant contraction in the second quarter than previously expected.
Preliminary GDP data showed a 0.3% contraction, but fresh measurements released on Friday showed a 0.4% decline instead.
Like the general Eurozone recession, Italy’s sluggish economy is caused by decreased consumer spending, high inflation, lower manufacturing output, and slower trading activity. In particular, the industrial sector contracted by 1.4%, the agricultural sector by 1.3% and the services sector by 0.1%.
National consumption declined by 0.3% and investments dropped by a whopping 1.8%.
Decreased consumer spending is clearly linked to higher inflation and goods prices. Groceries are 10.4% more expensive compared to last year, while fuel prices are some of the highest in the Eurozone at 1.9 euros/liter.
Although unemployment decreased by 0.2% in June, Italy’s historical wage problem continues to worsen quality of life. Italy and Austria are the only two Eurozone countries without a minimum wage, but while Austrian average salaries increased by 24.9% since 1990, Italy’s declined by 2.9%. Italy is the only European country where wages have declined in the past decades.
The European recession and increasing interest rates
Although Italy’s wages problem is endemic to the country, the declining GDP is not. In fact, were Italy to fall into recession, it would not be the first EU country to do so.
Germany and the Netherlands, respectively the first and fifth-largest EU economies, fell into recession. Germany is also Italy’s largest trading partner, causing a significant drop in Italian exports.
These recessionary trends are caused by the fastest monetary tightening policy in European Central Bank’s history. Interest rates have climbed to 4.25% but have not cooled inflation down enough. Headline inflation in the EU sits at 5.3%, being higher in Italy at 6%.
Such levels of inflation force the ECB to keep raising interest rates, bringing more countries over the recession fence.
Italy is the EU’s third-largest economy, and forecasts are still optimistic. The Italian GDP generally rises during the summer thanks to the large influx of tourism. A GDP increase in the third term would take a 2023 recession out of the equation.
Nevertheless, Italy is still prone to a technical recession (defined by two consecutive quarters in contraption) in early 2024.
France, the EU’s second-largest economy, seems equally safe from a 2023 recession. According to the national statistics center, France was the world’s most visited country this year with 80 million tourists, and its GDP grew by a solid 1% in the first half of 2023.
But if the ECB continues raising interest rates well into 2024, as it stated it would do, France too might fall.
