European Economics

Recession risks rising in Italy

European Chart Book
Written by Capital Economics Economist

After contracting in Q3, activity surveys suggest that Italy’s economy is on the brink of recession. Indeed, the Composite PMI was unchanged at 49.3 in November, which on past form points to GDP falling by as much as 0.3%. Whether or not the economy tips into a technical recession in Q4, the underlying pace of growth is clearly very weak. And that is even before the increase in government bond yields since May has started to filter through to significantly higher borrowing costs in the private sector. Admittedly, reports that the Government will make changes to its budget have pulled bond yields down a little recently. But we doubt that policymakers will do enough to alleviate investors’ concerns about the economy and public finances. So we still think that Italian bond yields will rise next year.