According to Italy's national statistics institute (Istat), in the current year the subdued global environment will also affect economic activity in Italy. In 2012, gross domestic product (GDP) in Italy is expected to fall by 1.5 percent in real terms as a result of a reduction in domestic demand only partially offset by the positive contribution of external demand. Total investment is forecast to drop substantially owing to tighter credit conditions and negative economic sentiment. Private consumption is also projected to fall, reflecting a decline in households' purchasing power and rising unemployment.
In 2013, according to Istat's projections, Italy's GDP growth is expected to be mildly positive (+0.5 percent) as stronger global trade sustains export growth. With private consumption and investment remaining weak, the contribution of domestic demand to output growth is foreseen to be negligible.
This outlook is subject to a number of downward risks. A revival of financial tensions, widening sovereign credit risk spreads and a slower-than-expected global trade recovery could lower Italian GDP growth significantly.