GDP is expected to have grown around 1.8 per cent in 2007 and the government is currently preparing to cut its own growth forecast for this year in line with the Bank of Italy’s projection. Italy began to feel the full impact of the global slowdown late in the fourth quarter of 2007, the Bank of Italy said, warning of a ”concrete risk that credit conditions for firms and families may undergo a significant tightening”.
Back on the 6 January 2008 I put up a post here which included a forecast for 2008. In that forecast I included the following, which really does not look so "out of consensus" now that the Bank of Italy have made their substantial write-down:
As most of the forecasts suggest, we have been seeing growth which is somewhat above trend during the upswing in the last couple of years, so it would not be surprising if we now saw some below trend growth. Trend growth (over a 5 year average) in Italy may even have fallen into the 0.5 to 1% range, so if I have to put a number I would say 0.7% with a definite "downside risk" tag attached. The nearest forecast to this that I have seen is the 1% one from the Morgan Stanley GEF team. The implications of such sustained low growth are, I think, important, since if Italy cannot find the way to raise trend growth up towards the 2% mark there is simply no way the government debt can be stabilised and sustained. And with each passing year we have one year less to crunch time
Really we now need to see the data for GDP in the 4th quarter of 2007. The readout will undoubtedly be very low, and it could be that quarter-on-quarter growth was either flat or even slightly negative, in which case we may already have entered recession at the turn of the year. Just keep watching for those downward revisions, and look out for the impact on the fiscal situation.