GDP, Istat halves 2024 growth: from +1% to +0.5%. The downward phase of prices is coming to an end

Istat cut Italy's growth estimates. Overall, the GDP growth forecast for 2024 was revised downwards by -0.5 percentage points (from +1% to +0.5%) and, for 2025, by -0.3 percentage points (from 1.1% to 0.8%). This was announced by the Institute, which released the forecasts for the Italian economy. The previous estimates were published last June.

Private household consumption continues to be supported by the strengthening labour market and the increase in real wages; if these trends continue, their growth rate would accelerate slightly in 2025 (+1.1%, after +0.6% in 2024). Gross fixed capital formation would grow weakly in 2024 (+0.4% from +8.7% in 2023), due to the disappearance of fiscal incentives for construction; the effect of the end of the fiscal stimulus would be even larger in 2025 when, despite the positive boost from the implementation of the measures in the NRP and the reduction in interest rates, the rate of investment growth would be zero.

The brisk employment dynamics observed during 2024, measured in terms of labour units (Ula), would be considerably higher (+1.2%) than that of GDP; these different dynamics would realign in 2025 (+0.8% for GDP and labour units). Improvements in the labour market would favour a strong reduction in the unemployment rate in 2024 (6.5%, from 7.5% in 2023), which would be followed by a further slight reduction the following year (6.2%). The return of the inflation rate, favoured by the contraction effect of energy goods prices observed in 2024, underlies the strong deceleration of the deflator of resident household expenditure (+1.1%, from +5.1% in 2023); for 2025, the resilience of incomes and consumption should lead to a rise of the household expenditure deflator (+2%).

The phase of falling prices is coming to an end. On the forecast horizon, the growth of the household consumption deflator would be +1.1% in 2024, rising to +2% in 2025. The growth of the GDP deflator would be +1.8% and +2.3% respectively. This is the Istat estimate contained in the Prospects for the Italian Economy.

The manoeuvre is expected to have a good effect on growth. The final impact of the simulated measures on GDP growth is positive over the entire three-year period: just under two-tenths of a point in 2025 and 2026, and just over two-tenths in 2027. The results of the simulation indicate that the implementation of the set of interventions indicated, being largely aimed at supporting the disposable income of workers, households and low income earners, would have a positive effect mainly on consumption and would exert pushes on domestic prices, with an increase in imports and a negative impact on the volume of public consumption, in the model exogenous in nominal terms; private investment would react only to a limited extent and with a delay to the increase in demand and the reduction in real interest rates..