Italian Economy Slows in Q2 2025: GDP Contracts by 0.1% Quarterly
Rome, July 30, 2025 – The Italian economy experienced a slight contraction in the second quarter of 2025, with Gross Domestic Product (GDP) declining by 0.1% compared to the previous quarter, according to preliminary data released by ISTAT, Italy’s national statistics institute. This marks a slowdown from the 0.3% quarterly growth recorded in Q1 2025, signaling challenges for Italy’s economic recovery. On an annual basis, GDP growth decelerated to 0.4% in Q2 2025, down from 0.7% in the same quarter of the previous year, reflecting a broader trend of weakening economic momentum.
The quarterly contraction was driven by a combination of factors, including a slowdown in the services sector and weaker export performance, partly attributed to anticipated U.S. trade tariffs impacting global demand. Domestic demand, which had been a key driver of growth in previous quarters, showed signs of softening, with household consumption growing modestly at 0.3%. Investments in fixed capital, particularly in equipment, saw a slight uptick but were insufficient to offset the decline in other sectors. Imports and exports both decreased, by 0.4% and 0.2% respectively, leading to a neutral contribution from net foreign demand.
Despite the quarterly dip, the acquired growth for 2025 stands at 0.5%, suggesting a cautious outlook for the full year. ISTAT noted that the economy continues to face headwinds from global trade tensions and high energy costs, though declining inflation and a strengthening labor market provide some support. Inflation remained low at 0.8% in June 2025, driven by falling energy prices and euro appreciation, which has helped stabilize household purchasing power.
Analysts point to the implementation of Italy’s Recovery and Resilience Plan (PNRR) as a potential buffer, with €58 billion in investments planned for 2025. However, the gradual phasing out of housing renovation incentives, such as the Superbonus, is expected to dampen residential construction, a sector that previously bolstered GDP growth. The European Central Bank’s recent interest rate cuts, including a 0.25% reduction in June 2025, are anticipated to ease financing conditions, though the impact may not fully materialize until later in the year.
Looking ahead, forecasts for 2025 remain mixed. The European Commission projects stable GDP growth of 0.7% for the year, rising to 0.9% in 2026, driven by domestic demand and PNRR-related investments. However, downside risks persist, including potential disruptions from global trade policies and geopolitical uncertainties. The International Monetary Fund recently revised its 2025 growth estimate for Italy slightly upward to 0.5%, reflecting cautious optimism.
The Italian government remains focused on fiscal consolidation, with the public deficit projected to decline to 3.3% of GDP in 2025 from 3.4% in 2024. Public debt, however, is expected to rise due to the lingering effects of past tax credits. Despite these challenges, Italy’s high savings rate and low private indebtedness continue to provide a foundation for economic resilience.
As Italy navigates this period of economic uncertainty, stakeholders are closely monitoring the interplay of domestic reforms, global trade dynamics, and monetary policy to gauge the trajectory of the eurozone’s third-largest economy.