Italy’s prime minister Matteo Renzi came under attack when Italy’s GDP unexpectedly slid to 0% vs. an expected gain of 0.2%.
The five star movement immediately blasted the performance of Renzi, whose constitutional reform package is under pressure.
If the reforms do not pass, Renzi threatened to resign.
Please consider Critics Lambast Renzi’s Economic Plans as Italian Growth Stalls.
Italy’s unexpectedly weak performance, with data on Friday showing that GDP was flat compared to expectations of a 0.2 per cent gain, has dashed hopes that the eurozone’s third-largest economy was on a steady upswing under the prime minister’s watch. The country’s recent growth streak, which began in early 2015 following a triple-dip-recession, has stopped after five quarters.
Opposition critics immediately seized on the flat GDP, both to lambast the prime minister for his economic policies and also to urge Italians to vote against Mr Renzi in the referendum, in order to push him out of office.
“It will be a dark autumn for the government,” Renato Brunetta, the leader of Forza Italia, the centre-right party founded by former prime minister Silvio Berlusconi, said in a statement. “Italians will rightly vote ‘No’ in the referendum with their pocket books, they will have no pity [for] Renzi the charlatan.”
Alessandro di Battista, a senior member of the populist Five Star Movement that is neck-and-neck with Mr Renzi’s Democratic Party in the latest opinion polls, was equally scathing. “Public debt has skyrocketed, GDP is stuck and there are no new jobs. This is Renzi-ism,” Mr Di Battista tweeted, adding the hashtag #iodicono, meaning “I will vote no”.
[Here’s that elusive second half pickup idea again]
Loredana Federico, an economist at UniCredit, the Italian bank, expects economic growth to pick up again in the second half of the year, with overall growth coming in at 0.9 per cent for the year.
But others were less confident. “Rather than a further acceleration in the quarters ahead, the cyclical peak is probably already behind us, and growth looks set to slow for some time,” wrote Daniele Antonucci, an economist at Morgan Stanley.
Mr Renzi has recently floated plans for new fiscal stimulus in the 2017 budget, due in October, but his spending and tax relief options are likely to be limited if he cannot meet the EU commitments.
Renzi’s Enormous Gamble
The biggest beneficiary of the constitutional reform will be the party that wins the next election.
Given Renzi is running neck-and-neck with Five Star Movement (M5S), he is taking an enormous gamble.
The reforms will diminish the power of the Senate and give a majority of Parliament to the party that wins the election. As it stands now, M5S has at least as good a chance as Renzi’s Democratic Party (PD).
Should M5S win the next election they will likely seek referendums on the EU and Euro itself. Won’t that be fun?
Meanwhile, the economic situation in Italy is hardly likely to get any better.
The Italian banking system is still on the verge of collapse, and Renzi will not will not win significant stimulus concessions from Brussels given Italy’s lackluster economic performance.
Renzi better be careful of what he wishes. He many not want those reforms if he gets them.
Mike “Mish” Shedlock