Italy's economy grew faster than expected in Q2, back above pre-COVID levels

By Crispian Balmer

ROME (Reuters) -Italy's economy grew 1.0% in the second quarter of the year from the previous three months, preliminary data showed on Friday, a stronger-than-expected reading achieved against a backdrop of surging prices and war in Ukraine.

On a year-on-year basis, second quarter gross domestic product in the euro zone's third largest economy rose 4.6%, ISTAT said. Analysts polled by Reuters had predicted a rise of 0.3% quarter-on-quarter and 3.7% year-on-year.

It was the sixth consecutive quarter of growth in Italy as the country bounced back from the slump triggered by COVID-19.

"The recovery from the crisis caused by the pandemic can be said to be complete, as GDP in the second quarter was well above the average level for 2019," the Treasury said in a statement.

However, with political instability returning to Italy following the collapse last week of Prime Minister Mario Draghi's national unity government, the economy could see a rocky end to 2022. Data released earlier this week showed morale amongst both businesses and consumers fell in July.

"It is now necessary to continue supporting household purchasing power and business competitiveness in the second half of the year, as well as to continue work on implementing the (EU) recovery fund and boosting investment and innovation," the Treasury said.

The strong Italian data helped the euro zone as a whole defy expectations of a slowdown, with GDP across the 19-nation bloc rising 0.7% quarter-on-quarter from April to June, and 4.0% year-on-year.

ISTAT said the industrial and services sectors had both grown, while output in agriculture had declined.

"A positive contribution to growth came from the domestic component, while the net foreign component generated a negative contribution," it added in a statement.

Italy, like much the rest of Europe, is facing increasingly challenging economic conditions, with Russia's invasion of Ukraine pushing up energy costs and heightening uncertainty for businesses.

The government revised down in April its 2022 economic growth forecast to 3.1% from a 4.7% projection made last September. The International Monetary Fund this week predicted that Italian GDP would rise 3.0% this year compared with average growth of 2.6% across the eurozone as a whole.

ISTAT gave the following details:

Q2 2022 Q1 2022 Q4 2021

Q/Q (pct change) 1.0 0.1 0.7

Y/Y (pct change) 4.6 6.2 6.4

r=revised

(Reporting by Crispian BalmerEditing by Keith Weir)