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Italy’s economy grows slower than EU average

The Italian economy grew by 0.2 percent in the second quarter of 2015, lower than the EU average, according to figures released by the national statistics agency, Istat.

Published: 14 August 2015 12:17 CEST

Italy's economy grows slower than EU average

Palazzo delle Finanze, headquarters of the Ministry of Economy and Finance. Photo: Nicholas Gemini/Wikimedia

The 0.2 percent increase in GDP between April and June matches the 0.2 percent increase Italy recorded for January – March 2015.

Seasonally adjusted primary estimates from Istat show that GDP was 0.5 percent higher than during the second quarter of last year.

The figures were more positive news for Italy's economy, which is finally seeing positive growth after a lengthy triple-dip recession. But growth in Italy is still lagging behind the EU average, which was recorded at 0.4 percent for the same quarter.

Italy's Ministry of Economy and Finance told Corriere Della Sera that the results had been “as expected” but that there is still plenty of work to be done.

“The country must do more in terms of political, structural and economic reforms to favour growth,” the ministry said.

Germany's economy, Europe's biggest, grew by 0.4 percent.

Raj Badiani, senior economist at IHS Global Insight, said the outlook for Italy remained precarious with low energy prices, the weak euro and loose monetary policy in the eurozone having provided a temporary boost which would not necessarily be sustained.

“The economy staggered out of yet another recession in the latter stages of 2014, while the anticipated resumption of growth in the first half of 2015 was disappointing given it was the first gain since mid-2011, and was a lacklustre return from extremely supportive external factors,” Badiani said in a note.

Unemployment at over 12 percent of the labour force continues to dampen a consumer-led recovery in Italy and many observers see the country's longer term prospects as being blighted by an array of structural factors, ranging from relatively high labour costs to stifling bureaucracy and corruption which act as barriers to inward investment.

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How is Denmark's economy handling inflation and rate rises?

The council, led by four university economics professors commonly referred to as “the wise men” or vismænd in Denmark, gave a much rosier picture of Denmark’s economy in its spring report, published on Tuesday, than it did in its autumn report last year.

“We, like many others, are surprised by how employment continues to rise despite inflation and higher interest rates,” the chair or ‘chief wise man’, Carl-Johan Dalgaard, said in a press release.

“A significant drop in energy prices and a very positive development in exports mean that things have gone better than feared, and as it looks now, the slowdown will therefore be more subdued than we estimated in the autumn.”

In the English summary of its report, the council noted that in the autumn, market expectations were that energy prices would remain at a high level, with “a real concern for energy supply shortages in the winter of 2022/23”.

That the slowdown has been more subdued, it continued was largely due to a significant drop in energy prices compared to the levels seen in late summer 2022, and compared to the market expectations for 2023.

The council now expects Denmark’s GDP growth to slow to 1 percent in 2023 rather than for the economy to shrink by 0.2 percent, as it predicted in the autumn.

In 2024, it expects the growth rate to remain the same as in 2003, with another year of 1 percent GDP growth. In its autumn report it expected weaker growth of 0.6 percent in 2024.

What is the outlook for employment?

In the autumn, the expert group estimated that employment in Denmark would decrease by 100,000 people towards the end of the 2023, with employment in 2024 about 1 percent below the estimated structural level.

Now, instead, it expects employment will fall by just 50,000 people by 2025.

What does the expert group’s outlook mean for interest rates and government spending?

Denmark’s finance minister Nikolai Wammen came in for some gentle criticism, with the experts judging that “the 2023 Finance Act, which was adopted in May, should have been tighter”. The current government’s fiscal policy, it concludes “has not contributed to countering domestic inflationary pressures”.

The experts expect inflation to stay above 2 percent in 2023 and 2024 and not to fall below 2 percent until 2025.

If the government decides to follow the council’s advice, the budget in 2024 will have to be at least as tight, if not tighter than that of 2023.

“Fiscal policy in 2024 should not contribute to increasing demand pressure, rather the opposite,” they write.

The council also questioned the evidence justifying abolishing the Great Prayer Day holiday, which Denmark’s government has claimed will permanently increase the labour supply by 8,500 full time workers.

“The council assumes that the abolition of Great Prayer Day will have a short-term positive effect on the labour supply, while there is no evidence of a long-term effect.”

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