Italy: Industrial production takes a breather – ING

According to Istat data, released last Friday, Italian industrial production contracted 1.3% MoM in September in seasonally-adjusted terms and expanded by 2.4% YoY once adjusted for working days, worse than expected, notes Paolo Pizzoli, Senior Economist at ING.

Key Quotes

“September’s disappointing reading comes after a positive surprise in the August release, suggesting the summer holiday closure effect might have been poorly reflected in seasonal adjustment procedures. We don't think this setback, after four consecutive monthly increases, should be overemphasized.”

“Looking into big aggregates, we note that the contraction was driven by the energy component (-6.3% MoM ), followed by intermediate goods (-3% MoM) and by investment goods (-2%), while consumer goods were marginally in positive territory (+0.4%). The sector breakdown shows that manufacturing equipment installation was the fastest growing sector (+11% YoY WDA), followed at some distance by pharmaceuticals (+7.9% YoY WDA) and transport equipment (+5.6% YoY WDA).”

“Overall, the performance of investment-related sectors remains satisfactory, in our view. Businesses seem to be taking advantage of an improved external backdrop and of tax incentives introduced in the last budget law. Business confidence data and filling order books suggest that this pattern could continue over the next few months. The government’s intention to reiterate a good chunk of incentives in the 2018 budget provides in principle additional support. To be sure, the extent to which this potential will translate into hard data will to some extent depend on how the upcoming electoral campaign will be shaping up and will affect business and consumer confidence.”

“With the September reading now in the bag, we note that industrial production has expanded by 1.5% QoQ in 3Q (from 1.2% in 2Q). When read in conjunction with recent progress in the labour market and in retail sales and with syncronized gains in confidence indicators, this seems still consistent with our forecast for an acceleration of quarterly GDP growth in 3Q17 to 0.5% QoQ (from 0.3% in 2Q).”