Italy's economy stagnates, casting shadow over outlook

By Gavin Jones and Antonella Cinelli

ROME (Reuters) -The Italian economy stagnated in the fourth quarter of last year from the previous three months, preliminary data showed on Thursday, missing a forecast for marginal growth and casting a shadow over prospects for this year.

The flat gross domestic product reading marked the second straight quarter of zero growth in the euro zone's third largest economy.

In a blow to Prime Minister Giorgia Meloni's government, activity has petered out despite the arrival in Rome's coffers of regular instalments of billions of euros of post-COVID 19 recovery funds from the European Commission.

On a year-on-year basis, Italy's fourth quarter GDP was up 0.5%, national statistics bureau ISTAT said.

A Reuters survey of 29 economists had forecast a 0.1% rise quarter-on-quarter and a 0.6% increase year-on-year.

"The fourth quarter result was expected but that doesn't make it any less worrying," Italian economic think tank Prometeia said in a research note.

"There is no growth carryover for the start of this year and 2025 looks like an uphill climb," it added.

Over the whole of 2024, the economy grew by 0.5% from the year earlier, when adjusted for the number of working days, ISTAT said.

The government had forecast 2024 growth of 1%, but that projection was not adjusted for working days. ISTAT will release non-workday-adjusted growth data on March 3.

There were four more days worked last year than in 2023, so the March 3 data may show higher growth than the figure released on Thursday.

The stagnant second half of 2024 leaves an extremely weak platform going into this year.

Looking ahead, the outlook is clouded by geopolitical tensions, the prospect of U.S. trade tariffs and the difficulties faced by the Rome government in deploying its EU pandemic recovery funds.

ING senior economist Paolo Pizzoli said he expected "very weak growth" at the start of this year and "a gradual recovery" in the second half, yielding full year growth of 0.7% which would be well below the government's 1.2% target.

The flat GDP reading between October and December was the result of a positive contribution from foreign trade - with exports outstripping imports - which was counterbalanced by a negative contribution from domestic demand, ISTAT said.

It gave no numerical breakdown of components with its preliminary estimate but said industry had expanded, while services and agriculture had declined.

(Reporting By Gavin Jones, graphic by Stefano Bernabei)