Italy's recovery slows, but government says data misleading

Italy's economy grew less than expected in the third quarter, suggesting a slowing recovery this year after three years of recession, but the government said the underlying picture was more encouraging. Gross domestic product in the euro zone's third-largest economy rose 0.2 percent in the July-to-September period and 0.9 percent on an annual basis, statistics bureau ISTAT reported on Friday.
That was just below market expectations and showed a slowing trend in quarterly growth. The 0.2 percent rate in the third quarter followed rises of 0.3 percent in the second and 0.4 percent in the first. Moreover, ISTAT revised down the year-on-year growth rates in both the second and the first quarters, making it less likely Prime Minister Matteo Renzi's government will meet its full-year growth target of 0.9 percent.
Renzi, who has staked his credibility on reviving an economy that has barely grown for 15 years, admitted his disappointment with the data and said he hoped for an upward revision. "We can only say we are satisfied when we are growing at 2 percent," he told reporters. ISTAT said trade flows were a drag on quarterly growth, which was driven by domestic demand, but it gave no numerical breakdown of components with its preliminary estimate.
The Treasury's chief economist, Riccardo Barbieri, told Reuters in an interview that the data probably underestimated the real state of the economy and there were reasons to think it may be revised up. He said it was still possible to achieve the full-year growth target although, barring revisions, this would require a return to quarterly growth of more than 0.4 percent in the final three months.
Some private economists are less upbeat. Fedele De Novellis of the Ref institute, said the economy would have stagnated in the third quarter but for the boost to activity from the Expo World's Fair, which attracted investment and millions of visitors to Milan before closing last month. The recovery this year is driven mainly by favorable external developments - the European Central Bank's bond-buying programme, which is keeping interest rates low; the weakness of the euro, which helps exports; and low oil prices which means cheap energy for firms and families. Renzi says tax cuts he has passed for low earners and companies, as well as reforms of the labour market, will help sustain growth even as global trade declines because of a slowing Chinese economy and weakness among emerging economies.