The Italian economy is unlikely to recover in the near term as economic performance is seen deteriorating further in the coming months, following a sharp contraction in the first quarter, IHS Global Insight economist Raj Badiani said in a note Tuesday.
The economist assessed that in the first quarter economic activity was constrained by sluggish domestic spending, which has been hit by fragile confidence as an austerity-hit Italy struggles to pull clear from the Eurozone crisis. In addition, disruptions caused by a series of transport-related strikes and poor weather also contributed to the contraction, the economist said.
IHS Global Insight observed that Italy's near-term recovery prospects remain very bleak, as it expects the economy to contract 0.5 percent sequentially in the second quarter and by 1.7 percent in the whole of 2012. In 2013, the rate of contraction is expected to ease to 0.2 percent.
Activity will also be hampered by the government's austerity measures, which could squeeze consumer and government spending significantly, as well as the continuing slump in business investment.
The firm noted that the recent hike in value added tax added to deterioration in consumer confidence, which is currently at record lows amid falling labor incomes and rising unemployment. However, spending is likely to pick up in the third quarter as consumers are expected to bring forward their major purchases to avoid the next tax rise slated for October.
Also, Italian exports may find it difficult to maintain their solid performance in the coming months due to increasing softness in demand in key exports markets across Western Europe, as well as major concerns about a softer global economy.
Preliminary data released by statistical office Istat showed the Italian economy contracted at a faster rate of 0.8 percent sequentially in the first quarter than the previous quarter's 0.7 percent, marking the sharpest decline since early 2009. Annually, gross domestic product dropped 1.3 percent during the quarter.
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