Italy: Industrial production rises unexpectedly in July – ING

The first relevant bit of hard data evidence for the quarter bodes well for 3Q17 GDP prospects, in particular for the GFCF component, according to Paolo Pizzoli, Senior Economist at ING.

Key Quotes

“According to Istat data, released yesterday, seasonally adjusted Italian industrial production expanded by 0.1% MoM in July, after a surprisingly strong +1.1% MoM in June. Consensus expectations had pointed to a 0.3% monthly contraction. The WDA measure was up 4.4% YoY (from 5.3% YoY in June), showing that the industrial recovery is still on at a healthy pace.”

“The aggregate breakdown shows the production of investment goods (+1.6% MoM), consumer goods (+0.5% MoM) and intermediate goods (+0.3% MoM) were all growing, while energy production contracted (-3.6% MoM).”

“Within the manufacturing domain, the production of machinery and plants turned out to be the fastest growing sector in WDA YoY terms (+8% YoY), overtaking transport equipment (+6.9% YoY) and food (+6.9%). Sectors that are part of the construction chain, such as wood and wood products and non-metal mineral products, also show a consolidating back to positive growth.”

“The takeaway from yesterday's release is that, industrial recovery is in place and is spreading across sectors. In particular, the good news is that production is accelerating in the investment goods arena. A revitalized supply of investment goods should in principle suggest that existing domestic fiscal stimuli and resilient external demand are ultimately playing out. In a GFCF perspective, the third quarter might bring about a rebalancing of the transport equipment and machinery and plants components, towards a mix more prone to productivity enhancements.”

“The statistical carryover for 3Q17 industrial production should now be at 1.1%, the same pace of quarterly production growth recorded in 2Q17. Taking into account the upbeat state of business and consumer confidence in July and August and decent labour market developments in July, this bodes well for a continuation of a sound GDP expansion in 3Q17. We are currently anticipating a 0.4% QoQ GDP growth in 3Q, with upside risks.”