Italian Economic Stagnation

By Gavin Jones and Antonella Cinelli

ROME (Reuters) – The Italian economy stagnated in the fourth quarter of last year compared to the previous three months, according to preliminary data released on Thursday. This missed the forecast for marginal growth and raises concerns about the outlook for this year.

This flat gross domestic product (GDP) reading marks the second consecutive quarter of zero growth in the Eurozone’s third-largest economy.

In a setback for Prime Minister Giorgia Meloni’s government, economic activity has stalled despite the influx of billions of euros from the European Commission as part of post-COVID recovery funds.

On a year-on-year basis, Italy’s fourth quarter GDP showed a 0.5% increase, as reported by the national statistics bureau ISTAT. A Reuters survey of 29 economists had predicted a 0.1% quarter-on-quarter rise and a 0.6% yearly increase.

Italian economic think tank Prometeia commented, “The fourth quarter result was expected but that doesn’t make it any less worrying. There is no growth carryover for the start of this year, and 2025 looks like an uphill climb.”

For the entirety of 2024, the economy grew by 0.5% compared to the previous year when adjusted for working days, according to ISTAT. The government had previously forecast 2024 growth of 1%, but this was not adjusted for working days. ISTAT plans to release non-working-day-adjusted growth data on March 3.

Since there were four more working days last year than in 2023, the upcoming data might reflect higher growth than the figures released on Thursday. The stagnant performance in the second half of 2024 leaves a weak foundation going into this year.

Looking ahead, the economic outlook is complicated by geopolitical tensions, potential U.S. trade tariffs, and the challenges faced by the Italian government in utilizing its EU pandemic recovery funds.

Paolo Pizzoli, a senior economist at ING, anticipates “very weak growth” at the beginning of the year, followed by a “gradual recovery” in the second half, resulting in a full-year growth of 0.7%, significantly below the government’s target of 1.2%.

The flat GDP reading between October and December was influenced by a positive contribution from foreign trade—where exports surpassed imports—counterbalanced by a negative impact from domestic demand, as reported by ISTAT. The agency did not provide a detailed numerical breakdown in its preliminary estimate but noted that while industrial growth continued, both services and agriculture saw declines.