Ciro Rapacciuolo

It is expected braking. Italian GDP grew more than expected in Q1 2025 (+0.3%), with industry interrupting its long decline. In Q2, however, tariffs and the Trump administration's alternating decisions kept uncertainty high and confidence low, mainly dampening exports and investments. Lower growth expectations, however, reduce energy prices, facilitating rate cuts in Europe.

Falling energy prices. The price of gas in Europe (FTT) continued to fall: 33 €/mwh in May, down from 50 in February, but still above 2019 levels (14 on average); electricity also fell (PUN at 88 €/mwh, down from 150), but the gap with other European countries remains. Oil prices also fell, reflecting expectations of a slowdown in global demand: 62 $/barrel in May, down from 76 in February.

Cheaper energy. The price of gas in Europe (FTT) fell to €37/mwh on average in April, from €50 in February, while remaining well above the €14 in 2019; a similar decline for electricity (PUN), to €108/mwh in April, from €150 in February; and oil is also cheaper: 70 $/barrel, from 75. Inflation is expected to fall in Italy, after rising to +2.0% in March from +0.7% in September 2024, due to higher energy prices (+3.2% per year from -8.7%); the core is down (+1.5% from +1.8%).

European rates down. Inflation is high in the US (+2.3% in April), where it is expected to rise due to the effect of tariffs on import prices, compounded by the depreciation of the dollar. It is slightly lower in the Eurozone (+2.2%), but here it will fall due to falling energy prices and a stronger euro. This means that the ECB will continue with its rate cuts in 2025 (already at 2.25%), while the Fed may stay on hold, with rates stuck at 4.50%. This will stimulate credit for Italian companies (-1.1% per year in March).

Falling investments. Monthly indicators for investment are all leaning negatively in the first four months of 2025: business confidence continues to decline for the third month in a row (91.5 in April, down from 93.2); there is a sharp increase in uncertainty; judgments on orders for capital goods are more or less stable at low levels and expectations for new orders are falling, an indication of weak demand.

Consumption: mixed indications. Continued employment growth provides impetus to real household income in early 2025, but the drop in confidence in March-April may prelude a renewed increase in the propensity to save. Retail sales shrank in Q1 (-0.5%), while car registrations in Italy recovered slightly (+2.7% year-on-year in April).

Services: uncertain trend. Tourism is continuing to grow in the first months of 2025 (+6.7% per year in February for foreigners), while RTT services (CSC-TeamSystem) shows negative indications, with turnover falling in Q1. For Q2, the HCOB-PMI continues to indicate moderate expansion (52.9 in April, up from 52.0), but business confidence has fallen further, due to the decline in orders.

Industry at risk of duties. Production increased in March (+0.1%), ending Q1 with a recovery (+0.4%), after 5 quarters of decline, although RTT indicates lower turnover. Duties mainly hit industry and the first April, post-Thanksgiving, data are mixed: the PMI indicates that the downturn has almost ended (49.3 from 46.6), but confidence drops for the second month in a row, to low values.

Export up, before duties. Italian goods exports were on the rise in early 2025, before US duties: +4.6% in value in Q1 compared to Q4 2024. However, imports are also growing, so much so that the contribution of net exports in Q1 is negative. The dynamics of sales in EU and non-EU markets were positive, thanks to a recovery in Germany (+5.4% over Q1 2024) and in March in the US in anticipation of duties (+11.8% in the quarter), while sales in China were still down. The PMI on foreign manufacturing orders in April points to a stabilisation, but the global PMI orders turn negative (47.2).

Eurozone: favourable start, braking in sight. In Q1 the area's GDP grew (+0.3%), with Spain leading (+0.6%), followed by Germany (+0.2%) and France (+0.1%). In industry in particular, Germany recovered strongly (+1.7% in Q1), while France and Spain remained almost static. In April, manufacturing PMIs all remained below the expansion threshold, but were up in Germany and France, down in Spain. PMIs also suggested braking in services and confidence deteriorated.

USA: GDP drops, economy holds up. US GDP fell by -0.1% in Q1, as a result of a slowdown in consumption (+0.3% the contribution, up from +0.7%), a resilience in investments (+0.3%), a strong accumulation of inventories (+0.6%) and a sharp drop in net foreign demand (-1.2%) and also in public spending (-0.1%). In April, industrial production came to a standstill (after +1.4% in Q1), but employment growth was good (+177 thousand, above the expansionary threshold).

China grows. Growth in Q1 (+5.4%), driven by manufacturing and construction. Industry is driven by exports, also thanks to earlier shipments due to US duties. In April, exports are still growing (+8.1% annually) and the manufacturing PMI remains in positive territory for the seventh month (50.4), albeit at a slower pace. This slowdown is linked to the decline in foreign orders and business confidence. But the 90-day easing of barriers with the US could keep Chinese exports dynamic in Q2. Positive signs also came from domestic demand (+4.6% p.a. retail sales in Q1), thanks to massive government stimulus measures.

Spain: boom not only from tourism and construction.

High growth. Spain still has a GDP level far behind Italy (EUR 580 billion less), but has been growing more for years. In 2014-2019 on average +1.6% per year, twice as high as Italy (+0.8%). After the fall in 2020, Spain recovered GDP levels already in 2021-2022 and then showed a robust expansion: +2.7% in 2023, +3.2% in 2024, much higher than Italy (+0.7% per year).

It stems from domestic demand. On the demand side, growth in 2024 was driven by consumption (+2.9%), mainly of services, and investment (+3.0%). Exports and imports also grew at a similar pace (+3.1% and +2.4%), so that their annual net contribution to GDP was almost zero.
All sectors contribute. On the supply side, all sectors grew in 2024. Industry by +2.7% (in VA terms), in contrast to other European countries, construction by +2.1%. Services much more (+3.9%), especially real estate (+5.9%), but also professional services (+4.2%). Immigration to Spain (which raises the population) contributed a large part to the increase in employment generated by the robust growth.

It also pushes fiscal policy. In 2024, Spain's public deficit is reduced to 3.2% of GDP (3.5% in 2023) and the debt is in sharp decline (101.8%, from 105.3%), thanks precisely to the strong GDP growth that raised the denominator. In 2025, Spain's fiscal policy is set to be expansionary, aiming to support economic growth, thanks also to the PNRR, while maintaining the objective of consolidating public accounts.

A good start to 2025. Q1 was positive for Spain, with GDP driven by contributions from consumption and investment (both +0.2%). Net exports also returned to make a positive contribution (+0.1%). In consumption, the weight of consumption in services remains important, a figure consistent with the sector's PMI in the expansionary area. Investments are driven mainly by those in buildings. Industry, however, seems to be struggling: the PMI has been in the recessionary zone for three months and reflects the weakness of production in Q1.

Much tourism... In the world ranking for tourist arrivals, Spain, second behind France, is ahead of Italy (fourth). The weight of the 'hotel-restaurant' sector, to a large extent activated by tourism, is 6.4% in Spain on the total added value, compared to 3.9% in Italy (1.5% in Germany; data for 2022). Spain is a direct competitor of Italy in tourism, in particular beach tourism and tourism in cities of art. Recently the problem of over-tourism has emerged, in cities such as Barcelona and Rome, and therefore doubts about the sustainability of a prolonged growth in travel: the contribution to GDP of tourism could slow down in both Spain and Italy.

...and industry as well. Spain remains less manufacturing than Italy (12.7% versus 16.8% in total VA). But automotive (ateco 29) counts for more in Spain: the share in total manufacturing is 11.6%, compared to 5.7% in Italy (22.3% in Germany). The new 'Cupra' brand, born from Seat (owned by Germany's VW), started producing cars in Catalonia a few years ago, and total Spanish car production has held up better in 2023-2024 (-7.7%) than in Italy, a country with more tradition in the sector, where production has plummeted (-36.0%) and only stopped falling at the beginning of 2025. Furthermore, in Spain, electronics (+17.7% production in 2024), pharmaceuticals (+10.0%) and chemicals (+3.4%) are growing, unrelated to the pull of tourism and construction.

Different twins. Spain counts less than other countries for our industry and exports, but it is still the 4th market for Italian goods: therefore, its robust growth has a positive effect on our economy. Moreover, there are some similarities between the two countries, such as the economic gap between different territories. Due to their high public debt, both were included in the 'PIIGS' group a few years ago and suffered the recession due to the sovereign debt crisis in 2011-2012, which did not affect other economies (Germany, France). Government bond yields, historically close, have been lower in Spain than in Italy for some years now (3.15% and 3.55% the 10-year yields in the first 5 months): the 0.40 point gap in medium-long term rates favours Spanish consumption and investments over Italian ones. Same effect as the gap in energy prices.