Mixed signals from May Italian confidence data

Italy’s May confidence data paints an uneven economic picture, signaling a likely flat second-quarter performance rather than outright contraction. Consumer confidence rose in May after a sharp April drop, recovering half the lost ground but still trailing January and February levels. The rebound reflects easing inflation concerns and reduced unemployment fears, though durable goods purchasing intentions remain subdued. Business confidence, however, shows a gloomier outlook, with services and construction sectors declining while manufacturers and retailers hold steady. The fifth consecutive drop in services confidence stems from sharp declines in tourism and transport, exacerbated by Middle East geopolitical tensions and rising transportation costs. Communication and business services saw modest gains, but tourism’s struggles persist despite improved Bank of Italy balance of payments data following the Milano-Cortina winter games. Pricing intentions in services eased in May, returning to first-quarter levels before the Middle East conflict, offering tentative signs of reduced inflation risks. Construction confidence declined slightly, driven by a drop in specialized works, though infrastructure confidence remains high due to national recovery plan investments nearing their deadline. Residential sector confidence improved marginally, still recovering from the impact of the ‘superbonus’ tax incentive. Manufacturing confidence stabilized at a lower level than Q1, with orders stagnant and finished goods stocks rising, limiting production growth. Pricing intentions held at April’s peak, suggesting manufacturers anticipate persistent inflation pressures unlike their services counterparts. This divergence raises concerns about potential second-round inflation effects in core prices. Overall, the data points to cooling economic activity in Q2 2026, with consumer confidence stabilizing and mitigating risks to private consumption. After a 0.2% GDP gain in Q1, analysts expect flat growth in the second quarter, reflecting the mixed but cautious economic sentiment across sectors.