Padoa-Schioppa and the Italian 2007 GDP Growth Forecast

Italian Finance Minister Tommaso Padoa-Schioppa is being quoted in the press this morning as saying that ``The growth target of 2 percent for 2007 appears to be more ambitious that we thought two months ago,''.

He certainly has this one right. With growth in Q1 at just 0.3% and in Q2 at 0.1%, and the eurozone economy visibly slowing by the day, I would say it will be hard this year for Italian GDP to push through the 1% ceiling as an annual total. Basically I don't see combined growth in Q3 and Q4 as being greater than the combined total for Q1 and Q2. I explain some of my reasoning here.

This is why I normally don't agree with the kind of economists Bloomberg seems to consult, who seem to continually regard Italy's consistently sub-par growth readings as "unexpected". If you look at Italy's growth history over the last 15 years, think about the ageing population issue, and follow the short term economic data on consumer confidence, retail sales and industrial ouput, then the GDP readings being obtained shouldn't come as a shock, since they are empirically and theoretically entirely to be expected. As a consequence the annual growth rate for 2007 looks like being well down. To be talking about 2% growth at this stage is frankly ridiculous. As I say, in the current climate it is hard to imagine H2 2007 being better than H1. So I think someone somewhere had better get to work preparing the explanations for those good people from Standard and Poor's and Moody's.