Private consumption in Italy has remained subdued for most of the year, however it could be set to rise in the second half if inflation remains “well behaved”, ING has said.
Paolo Pizzoli, senior economist for ING in Italy and Greece, was commenting following the publication of revised national accounts data that confirms that the Italian economy contracted slightly in the second quarter of 2025.
GDP decline
GDP fell by 0.1% in the period, following a 0.3% expansion in Q1. Output in the second quarter was up 0.4%, compared to a 0.7% gain in the first quarter.
‘The contraction in exports tied to the US tariff saga acted as a drag, even more than expected,” Pizzoli commented. “On the domestic demand front, we had anticipated a positive contribution from gross fixed capital formation and inventories. The latter proved stronger than foreseen.”
“On the private consumption front, the flat reading confirms that lingering uncertainty related both to US tariffs and to a gloomy geopolitical backdrop has increasingly been inducing prudent consumption behaviour, notwithstanding the ongoing catch-up in household purchasing power.”
‘Main engines’
At the start of 2025, ING had anticipated that private consumption and private investment would be the “main engines” of economic growth this year, however following the Q2 data, both are likely to be less of a factor than anticipated.
“Whether there will be some catch-up in consumption in the second half of the year, which we still deem possible, will depend on developments on the employment and on the inflation fronts,” said Pizzoli.
“Labour market forward-looking indicators continue to point to a marginal increase/stabilisation of employment through the end of the year and inflation developments remain favourable, continuing to support further gains in real disposable income.”
Inflation levels
Istat’s latest estimate for August put headline inflation at 1.6%, down from 1.7% in July, due to a further slowdown in energy prices, however core inflation (excluding energy and fresh food), edged marginally higher, to 2.1%.
Were inflation to remain between 1.5% and 1.8%, this would facilitate a “small acceleration” in private consumption over the remainder of the year.
“Against this updated backdrop, we confirm our forecast for average 2025 GDP growth at 0.5%, but see downside risks to our 0.8% projection for 2026,” Pizzoli added. Read more here.
