ITALY DATA: Tepid Consumption Trends Take Shine Off Upwardly Revised Q3 GDP

Italian Q3 GDP was revised up a tenth to 0.1% Q/Q (vs -0.1% prior), and is now back in line with the original consensus for the flash release. Details suggest inventories were a large drag in Q3, but weak household consumption trends remain a concern. We continue to think that the biggest risk to continued Italian fiscal consolidation (and by extension BTP/Bund spread tightening) is the growth outlook. While a cyclical recovery is expected over the coming years, fading EU RRP disbursements and a weak potential growth picture remain medium-term fragilities. 

• As anticipated from the limited flash release details, net exports made a positive contribution to sequential growth. Exports rose 2.6% Q/Q (vs -1.7% prior), while imports rose 1.2% Q/Q (vs 0.4% prior). The export performance suggests Italian producers have recovered well from the trade-war/tariff induced drag in Q2.
• Household consumption was tepid, rising just 0.1% Q/Q. Despite a low unemployment rate and positive real wage growth, households remain cautious.  It is hoped that middle-class tax cuts announced in the 2026 budget will help to stimulate consumption next year.
• Gross fixed capital formation rose 0.6% Q/Q (vs 1.5% prior). A 1.4% pullback in dwelling investment was offset by increases in machinery and equipment (2.5%) and transport (4.5%).
• Government spending made a neutral contribution for the second consecutive quarter, rising 0.2% Q/Q. Italy hopes to continue running primary surpluses in the coming years in order to exit the EU’s excessive deficit procedure and reduce its debt burden
• Inventories pulled down sequential GDP growth by almost 0.6pp.