2010.08.0609:28:00UTC+00Italian Economy Continues To Expand

The Italian economy expanded for the second straight quarter, suggesting that the recovery from the worst recession is continuing, despite the currency bloc's debt crisis.

Gross domestic product, or GDP, rose 0.4% sequentially in the second quarter, the same as in the first three months of the year, preliminary figures released by statistical office Istat showed Friday. That was in line with economists' expectations. On an annual basis, the economic growth quickened to 1.1% in the second quarter from 0.5% in the first, which was the first positive GDP figure since the first quarter of 2008.

The preliminary report did not contain details of GDP components. Economists expect exports to be the growth driver. "Most likely, net exports remained the main growth engine in second quarter, with capex likely to have posted another quarter of solid growth," said Davide Stroppa, an economist at UniCredit Research.

Most recent data from Istat showed that exports rose 10.5% year-on-year in the first five months of this year. Exports have been the main growth driver for most of the Eurozone economies in the post recession period, as the worst downturn nullified the contribution from private consumption. A weak euro has attracted higher global demand for euro area products.

Growth prospects for the Italian economy has brightened recently. Manufacturers and service providers are optimistic about their business conditions. Today, the statistical agency said industrial production grew at a faster pace in June, rising for the fifth month in a row. Households are also confident about the economy. The country's labor market situation also improved notably. In June, the jobless rate fell unexpectedly after stabilizing in previous two months.

The Bank of Italy said in July that this year and next year, the economic recovery in Italy is likely to be sustained by export demand. But, the boost from exports may lessen in the coming months as countries start consolidating their budgets and completes the phasing out of emergency measures. The Italian government last month approved EUR 25 billion deficit reduction plans to reduce the shortfall to below the 3% limit set by the European Commission.

Yesterday, European Central Bank President Jean-Claude Trichet set an optimistic tone for the Eurozone economy saying that available economic data and survey-based indicators suggest a strengthening in economic activity in the second quarter of 2010. Moreover, available data for the third quarter are better than expected.

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