Italy: Industrial production accelerates - ING

Italy’s August positive production surprise was broad-based, and bodes well for 3Q17 GDP growth, according to Paolo Pizzoli, Senior Economist at ING and ING’s current 1.5% average GDP growth forecast for 2017 seems well within reach.

Key Quotes

“Italian industrial production data, published yesterday by Istat, provided additional evidence that the economic recovery continued over the summer, possibly at a slightly accelerated pace.”

“August seasonally adjusted production increased by 1.2% MoM (from 0.1% MoM in July), exceeding expectations. The WDA measure was up 5.7% YoY (from 4.6% YoY in July).”

“The industrial recovery was confirmed as broad-based, with seasonally adjusted energy (+4.6% MoM), intermediate goods (+2.4% MoM) and investment goods (+2.2% MoM) in positive territory, and consumer goods only in soft contraction (-0.5% MoM). The sector breakdown suggests that the ongoing re-balancing between the investment goods components was still in place in August, with transport equipment losing some ground to machinery and plants. Tax incentives on new productive investment introduced in the last budget seem to be taking effect. Reports from the machine tools producer association have been constantly upbeat of late, pointing to a rising share of domestic demand in their order books. All of this should have a positive bearing on GDP developments over 2H17.”

“Looking ahead, aggregate order books data suggest that the positive production momentum should remain in place over the remainder of the year. Further out, the likely reduction in the next budget on the scope of tax incentives and increasing visibility of the political risks as we get closer to political elections might cool dampen spirits in 1Q18.”

“All in all, yesterday’s industrial production release supports our view that Italian GDP growth could accelerate to 0.5% QoQ in 3Q (from 0.4% in 2Q), making our current average 1.5% average GDP growth forecast for 2017 well within reach.”