Italys economy recorded an unexpected contraction in the second quarter of 2025, shrinking by 0.1% compared to the previous quarter, according to preliminary data released on Wednesday by the national statistics bureau, ISTAT. The decline is attributed to weakening trade flows, rising global uncertainty, and the early effects of increased U.S. tariffs.
Despite expectations from economists surveyed by Reuters for modest quarterly growth of 0.1%, the euro zone’s third-largest economy underperformed. On a year-on-year basis, Italy’s gross domestic product (GDP) rose by just 0.4%, missing the consensus forecast of 0.6%.
ISTAT reported that domestic demand remained positive, but it was outweighed by negative trade contributions between April and June. The disappointing data arrives amid a backdrop of increasing protectionist policies, particularly from the United States, following President Donald Trump’s announcement of higher tariffs earlier this year.
Oxford Economics’ chief Italy economist, Nicola Nobile, commented that the figures could be explained by a “normalisation of net exports” following a strong first quarter, where Italian companies frontloaded shipments to the U.S. in anticipation of the new tariffs.
UniCredit’s chief Italian economist, Loredana Federico, further explained that the unexpected decline was due to persistent weakness in manufacturing and stagnation in services, which had been expected to show a mild recovery.
Economic analysts warn that this is not a one-off event. Think tank Prometeia described the data as “a cold shower,” signaling that ongoing trade turbulence and the depreciating euro-dollar exchange rate may continue to pressure Italy’s economic prospects.
The Italian government had already adjusted its economic outlook earlier this year, slashing its 2025 growth forecast to 0.6% — down from the 1.2% projection made in September 2024. That downgrade came amid concerns over deteriorating trade relations and the broader impact of global economic fragmentation.
Further clarity on the detailed breakdown of Italy’s GDP components will be available on August 29, when ISTAT is set to release updated figures.
Meanwhile, data released Wednesday revealed that the euro zone’s overall economy grew by 0.1% quarter-on-quarter, defying expectations of stagnation, and highlighting Italy’s underperformance within the bloc.