Italy: Durable solution to the political instability looks beyond reach – Rabobank

Rabobank analysts note that Italy’s economic stagnation has continued into the second quarter of 2019, but its labour market has continued to improve gradually.

Key Quotes

“PM Conte gets a second shot at forming a government without returning to the polls after weeks of political uncertainty stemming from the Lega-Five Star coalition collapse.”

“Talks between Five Star and the Democratic Party (PD) can still break down, in which case fresh elections will be held – for which Salvini’s Lega would be favourites to win.”

“Any new government will be tasked with passing the 2020 budget, which is expected to be less problematic than last year.”

“The Lega-Five Star split-up is unlikely to bring the political stability necessary to solve Italy’s long-standing problems. Therefore, we remain concerned about the long-term growth outlook.”

“In the near term, we expect the economic stagnation to continue and forecast growth to be 0.0% y/y in 2019 and 0.1% y/y in 2020.”