GDP returns to growth in the fourth quarter

Marginal improvement in Q4: A second release revealed that the economy rose 0.1 sequentially in Q4, exceeding both the flat Q3 result and the preliminary estimate. On an annual basis, economic growth was steady at Q3’s 0.6% in Q4. As a result, the economy expanded 0.5% in 2024 as a whole (2023: +0.8%), marking the worst result since 2020 and undershooting the Euro area average.

Fixed investment fires ahead: Domestically, the sequential uptick reflected a rebound in fixed investment, which rose 1.6% in Q4 (Q3: -1.6% qoq s.a.), marking the best reading in almost two years; improvements in non-residential construction plus machinery, equipment and weapons systems—fueled by EU funds and lower interest rates—outweighed weakness in residential building amid the phasing out of the Superbonus scheme. On the flip side, private consumption growth decelerated to 0.2% in Q4 (Q3: +0.6% qoq s.a.), weighed on by higher inflation, and government spending growth edged down to 0.2% (Q3:+0.3% qoq s.a.). On the external front, goods and services exports declined at a slightly milder pace compared to Q3, contracting 0.2% in Q4 (Q3: -0.3% qoq s.a.). Lastly, imports swung into contraction, dropping 0.4% in the last quarter (Q3: +1.2% qoq s.a.).

Private consumption to fuel growth: Our Consensus is for sequential GDP growth to pick up from Q4 levels in Q1 2025. Lower interest rates will buttress private spending growth—roughly one-third of households' mortgages have variable rates—and stronger EU demand should fuel a rebound in exports. In 2025 as a whole, economic growth will hover around 2024 levels driven by rebounding exports and accelerating private consumption. That said, economic growth is set to remain below the Euro area average as public spending will decelerate and fixed investment remains flat. Rising U.S. protectionism is a downside risk to growth, while a faster-than-expected rollout of fiscal stimulus in Germany is an upside risk.

Panelist insight: Commenting on the outlook for Q1 2025, ING’s Paolo Pizzoli stated: “On the investment front, the construction subcomponents should confirm diverging trends, while the machinery component might find fresh support by the simplification of requirements for accessing Transition 5.0 incentives introduced by the turn of the year. Additionally, we don’t rule out that Italian exports might temporarily benefit from frontloading imports from the US in anticipation of possible tariffs. All this looks consistent with our call for another small positive reading for GDP growth in the first quarter. For now, we maintain our forecast for average Italian GDP growth at 0.7% in 2025, but we are well aware that developments in international trade and the geopolitical environment might soon add downside risks to our forecast.”

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