CHART OF THE DAY: The Awful Details Behind Italy's Economic Stagnation

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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.

From Pillonca:

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

From Pillonca:

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.

chart of the day, italy gdp per capita, june 2011

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