The story was the same in the third quarter, except that, by stimulating a recovery in consumption, the small gains made in purchasing power helped offset the negative consequences of monetary tightening on investment. The fourth quarter is unlikely to be any different. Signals from the industrial sector still point to a deteriorated environment, with a decline in production, surveys persistently reflecting lower order books and weak external demand. Against this backdrop, productive investment growth is expected to stay in the red, at least until summer, then recover once the first signs of monetary policy normalisation begin and demand picks up. In 2024, however, it is expected to be down sharply compared with 2023, i.e -2.6%.

In the fourth quarter, production in construction is will remain contained. Including this slight growth in Q4, housing investment should drop 6.8% in 2023 and nearly 3% in 2024. Weak housing construction should nevertheless be offset by investments in public works, still benefiting from recovery plan.

Consumption is will likely remain the main driver of growth. Following two years of acute inflation, the inflation rate should near 2% in 2024. The resulting gains in purchasing power and persistently expanding labour market are likely to shore up activity. That said, although consumer spending is still climbing (at a rate of 1.2% expected in 2024), it should nevertheless slow compared to 2023 (which recorded an increase of 1.7%). Furthermore, households are facing deteriorated financial conditions stemming from this inflationary episode. Wage increases have not been sufficient to offset price rises, causing saving propensity to significantly erode along with the savings accumulated over the last two years. In addition, even if employment continues to grow, the slowdown in industry and expected turnaround in the construction sector should see the unemployment rate start rising in H2 2024. Households will be able to rely, however, on the measures included in the Finance Act, particularly middle-income households, which have been hit hard by the increase in the CPI. Baskets of consumer goods should benefit more from tax cuts and targeted family allowances.

Finally, the slowdown experienced by Italy’s main trading partners is unlikely to contribute much to export recovery early in the year, although they should get some help from a recovery in demand starting in H2. The decline in imports caused by the slowdown in investment and consumption of durable goods is expected to continue, promoting a temporary contribution of foreign trade and a recovery in current account surpluses.

In conclusion, GDP growth is expected to slow from a timid 0.7% in 2023 to 0.6% in 2024. As the effects of lower interest rates can only fully be appreciated at the end of the year, the impact of monetary policy normalisation is not expected to translate into stronger growth until 2025.