Italy stats bureau cuts 2025 GDP growth estimate, in line with government

ISTAT has lowered Italy's 2024 GDP growth forecast to 0.6% from a prior 0.8% due to uncertainty surrounding U.S. tariff policies, while also reducing the 2026 growth target to 0.8% from 1.1%. Domestic demand is expected to drive growth in both 2024 and 2025, with trade flows negatively impacting GDP. Despite the lowered growth projections, Italy's unemployment rate continues to decline, reaching 5.9% in April.

Analysis

Italy's national statistics bureau, ISTAT, has revised its economic growth forecast for 2024 downwards to 0.6% from a previous estimate of 0.8% made in December, attributing the adjustment to mounting uncertainty surrounding the impact of U.S. President Donald Trump’s tariff policy. This revision aligns with the government's April estimate. ISTAT also projects GDP growth of 0.8% for 2026, a reduction from its earlier 1.1% target. Economic expansion in both 2024 and the subsequent year is anticipated to be driven exclusively by domestic demand, with trade flows expected to exert a negative influence on GDP during this period. This forecast comes after the Italian economy expanded by 0.7% in both 2022 and 2023. Despite the moderated growth outlook, Italy's labor market demonstrates resilience, with the unemployment rate declining to 5.9% in April from 6.1% in March. ISTAT forecasts an average jobless rate of 6.0% for the current year, an improvement from the 6.2% December estimate, and anticipates a further decrease to 5.8% next year.

Key Decisions for Investors

• Investors should closely monitor developments related to U.S. tariff policies, as these are cited as a key factor for economic uncertainty and are expected to negatively impact Italy's trade balance.
• Given that domestic demand is projected to be the sole driver of Italian GDP growth, consider focusing on sectors and companies primarily serving the Italian internal market.
• The relative strength and improving trend in Italy's labor market, with unemployment falling, may offer some support to domestic consumption, potentially offsetting some of the broader economic sluggishness.
• Re-evaluate exposure to Italian assets, particularly those sensitive to macroeconomic growth, in light of the downward revisions to GDP forecasts for both 2024 and 2026.