Figures show that Italy’s economy has fallen back into recession, which is defined as a GDP contraction for two consecutive quarters. The value of the country’s goods and services, contracted by 0.2 per cent in the second quarter of this year compared to the previous quarter, when it contracted by 0.1 per cent. This compares with the median forecast of a 0.1 per cent expansion predicted in a Bloomberg News survey. Output was down by 0.3 per cent from a year earlier. At the end of last year, Italy seemed to be coming out of recession, growing marginally in the last three months of the year. But since then the situation has been getting worse. Italy needs growth to bring down its huge debt burden.
Last week’s European Central Bank (EBC) interest rate meeting sprang no surprises. Key interest rates were left unchanged and the outlook of unaltered key rates over a long period was confirmed. While ECB president Mario Draghi referred to slight improvements in lending and the ongoing preparations of buying asset-backed securities (ABS), the economy and inflation remain problem areas.
But according to Draghi, economic data is consistent with the assessment of a continuously moderate but diverging economic recovery. The ECB’s assessment of inflation has remained broadly stable with upward and downward risks broadly equal. But inflation may fall further if demand for food from Russia collapses.
In the US, the rate of growth of the services sector fell in July compared to the previous month, but still posted its second-highest reading in four and a half years. A survey by financial data firm Markit showed that the final reading of its services Purchasing Managers Index (PMI) for the US dipped to 60.8 in July from June’s 61.0. The June reading was the highest final reading for any month since the survey began in October 2009. A reading above 50 signals expansion in economic activity.
A reading above 50 in PMI surveys indicates an expansion in activity while one below that threshold points to a contraction.
This article was compiled by Bank of Valletta for general information purposes only.