The Italian economy is the third largest in the Eurozone, behind Germany and France and currently fourth largest in the wider EU, with the UK second, behind Germany. For context, the size of the German economy is approximately $3.7 trillion whereas the Italian economy is about $1.9 trillion. Consequently, the strength or weakness of the Italian economy has a significant influence on the fortunes of the Eurozone economy as a whole.
The current dispute between the EC and Italy over its budget proposals relates to the fact that Italy intends to extend its national debt (effectively) in order to stimulate its economy and follow through on a number of populist promises that the coalition 5-Star Movement and La Liga made to the electorate.
Data just released shows that the Italian economy did not grow in Q3 2018 (it didn’t contract either) with growth of 0%. The growth rate slipped back from 0.2% in Q2 2018 and was worse than analysts’ expectations of an anaemic 0.1% growth figure. The growth (or lack thereof) is the worst quarterly performance seen for the Italian economy since Q4 2014 when growth also stalled. Industrial output contracted, but services, fishing agriculture and forestry outputs balanced it by increasing.
For the year-on-year figures, the economy saw expansion of 0.8% compared to Q3 2017, slowing from 1.2% in Q2. The Q3 figure was the weakest year-on-year value since Q2 2015.
Across the full Eurozone bloc of 19 nations, growth in Q3 slowed over the Q2 rate, dropping from 0.4% to 0.2%. Unsurprisingly, growth across the full EU also weakened. Growth amongst the 28 current EU states declined from 0.5% in Q2 to 0.3% in the most recent quarter.
Uncertainty over Brexit, trade disputes with the USA and the Italian budget dispute all contributed to declining economic sentiment in the EU which has fallen for a tenth consecutive month.