Italian GDP came in way behind its European rivals, and may be about to get much worse, according to Societe Generale’s Vladimir Pillonca.
Pillonca explains that last quarter’s GDP growth, a dismal 0.1% quarter-over-quarter, was largely driven by government spending.
Today’s detailed breakdown shows that by far the strongest component of Italian domestic demand was government consumption (0.5%qoq), while both household consumption (0.2%qoq) and investments (0.1%qoq) virtually stagnated. Consumption of durable goods was especially weak, and is now running at -6.8%yoy. An ominous sign of weak confidence in the future path of the economy.
What’s particularly worrying is that that government spending will soon evaporate, according to Pillonca. The country is in a difficult debt position already, with a debt to GDP ratio of 119%. It’s unlikely the country will undergo austerity measures before 2012, but even a slowdown in current spending might be enough to put the country into stagnation. So it may have to choose to spend more, against the preference of ratings agencies
Looking ahead, we continue to expect Italian GDP growth to average just 0.8%yoy both in 2011 and in 2012. The chronic and persistent lack of growth also carries negative implications for Italy’s fiscal trajectory, as tax revenues are highly pro-cyclical. Additional fiscal measures, even for this year, may soon become unavoidable if these trends persist.
Note, Italian GDP per person has been in decline for sometime, a fact hampering the sovereign’s ability to pay back its debt.
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