Italy: Confidence gained further ground in August – ING

In view of Paolo Pizzoli, Senior Economist at ING, yesterday’s batch of confidence data looks consistent with a continuation of the Italy’s economic recovery in 3Q17 at a healthy clip.

Key Quotes

“We are currently pencilling in another +0.4% QoQ for the Italian GDP, as in 2Q.”

“The August batch of confidence data, released yesterday by Istat, was unambiguously growth supportive.”

“Seasonally adjusted consumer confidence posted the fourth increase in a row, leaping to 110.8 (from 106.9 in July), the highest level since December 2016. The sharp increase was backed by improvements in the current and expected economic conditions and in the personal climate component. The latter was well mirrored in a decline in the unemployment expectation, which fell for the first time since last March. Judgements on the household balance sheet improved; interestingly, this was seen as an opportunity to save more (now and in the future) rather than an opportunity to increase purchases of durable goods.”

“The composite business confidence index edged up to 107 (from 105.6 in July). This set a new high, with differences across sectors. The main driver was the market services sector (107 from 105.1), propelled by the tourism component, while confidence in manufacturing was only modestly up (108.1 from 107.8). Business confidence fell in the construction sector (128.4 from 131.1 in July), interrupting a streak of four consecutive increases, and in the retail sector (to 105.3 from 108.8 in July).”

“Digging into the manufacturing sector’s details, we note an improvement in the consumer and intermediate goods sub-components and a slight deterioration for investment goods. In all three, businesses report a depletion of inventories. Interestingly, notwithstanding a deterioration in the order component, businesses have increased production expectations. The ongoing recovery in the manufacturing sector, while still unspectacular, does not look like it will peter out soon.”

“Taken together, confidence data for July and August suggest that the economic recovery should remain well in place in 3Q17, possibly fuelled by the domestic demand components. The next employment report for July, due out next Thursday, might provide the first set of supporting hard data evidence. We are currently pencilling in another 0.4% QoQ GDP gain in 3Q17, and project economic growth at 1.4% for the whole year.”