Italy's shrinking GDP puts pressure on Meloni

Italy's economy shrank by a worse-than-expected 0.3 percent in the second quarter of 2023, heaping pressure on Prime Minister Giorgia Meloni, who has tied her political future to the nation's economic performance.

As recently as last week, the leader of the country's rightwing coalition government was predicting her nation would outperform Germany and France this year.

She got a double dose of bad news this week when the latest numbers showed Italy's 0.3 percent contraction on a quarterly basis in its gross domestic product, or GDP, came at the same time as the GDP of the eurozone as a whole grew by 0.3 percent.

Analysts said it will be hard for Meloni to continue to claim her government is effectively managing the economy against the backdrop of other European Union countries in the eurozone performing better.

Francesco Galietti, founder of the Italy-based Policy Sonar political risk consultancy, told the Financial Times newspaper: "This is a nasty surprise for Meloni. She was focusing so much on inflation she probably did not expect growth to lose steam so quickly."

Galietti said Meloni's government had been working to lower high consumer prices and to put Italy's debts on a more sustainable footing but had not focused as intently on promoting economic growth.

Ubaldo Pagano, a lawmaker from the opposition Democratic Party, said the poor results should force the government to rethink its economic policies.

"This is not about economic downturns or bad luck, these are the results of the blatant inability of this government to manage economic processes and encourage investment," he said.

But Italy's finance ministry said the blame for the poor performance in the second quarter lay with the European Central Bank's repeated hiking of interest rates in attempts to lower inflation, which have impacted Italy disproportionally because of its larger-than-average national debt.

The ministry also blamed a "decline in the international industrial cycle" and "the impact of the prolonged phase of rising prices".

The Reuters news agency quoted Italy's national statistics bureau, ISTAT, as saying the country's GDP was up 0.6 percent year-on-year in the second quarter.

However, analysts had expected the country to record a 0.9 percent rise compared to the same period the year before, and for quarter-to-quarter growth in the second quarter to have been stagnant.

The Italian government has set itself the target of achieving GDP growth of 1 percent in 2023, which the Treasury claimed this week was "still fully within reach".

Italy was not the only European nation to record disappointing GDP growth in the second quarter. Germany registered zero growth and drew a dire prediction from the International Monetary Fund this week that its economy was on course to shrink in 2023. Austria also performed poorly in the second quarter.