Italy’s preliminary GDP for Q2 fell by 0.1%, contrary to the expected increase of 0.1%, according to Istat data released on July 30, 2025. The previous quarter had a GDP growth of 0.3%. Compared to last year, GDP grew by 0.4%, which is lower than the expected 0.6% growth, while last year saw a growth of 0.7%. The quarter-to-quarter decline is due to lower contributions from agriculture, forestry, fishing, and industry, with services showing no support.

Domestic And Net Export Impact

From the demand side, the domestic component, including inventories, had a positive effect, but net exports negatively impacted GDP. This unexpected contraction in Italy’s economy during the second quarter of 2025 raises concerns. It dampens the optimism from the previous quarter’s growth and suggests more market volatility ahead. The immediate response is likely to be negative for Italian assets. Weakness in Italy, the third-largest economy in the Eurozone, worries the entire region, especially since early July 2025 showed a slowdown in German factory orders. This combined pressure may lead to a bearish outlook on the Euro. Thus, we should look for strategies that could benefit from a possible decline in the EUR/USD exchange rate.

Central Bank Positioning

This data puts the European Central Bank in a tough spot before its next meeting. With Eurozone HICP inflation at 2.4%, showing signs of easing but still strong, officials are stuck between tackling inflation and helping a struggling economy. We should keep an eye out for any dovish statements that could affect interest rate derivatives. The report highlights concerns over net exports, which is troubling for Italy’s government debt. Past events, like the 2018 political turmoil, demonstrate how fast growth worries can cause the spread between Italian and German 10-year bond yields to widen. We’ll monitor this spread closely; a consistent rise above 175 basis points would be a strong bearish signal. For equity traders, the downturn in the industrial sector suggests considering put options on the FTSE MIB index. Since this index is heavily focused on banking and industrial companies vulnerable to economic downturns, this approach allows for a controlled way to bet on potential market declines in the coming weeks. Create your live VT Markets account and start trading now.

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