ITALY’S economy unexpectedly expanded, defying expectations of energy-driven stagnation in a boost to new Prime Minister Giorgia Meloni.

Third-quarter output advanced 0.5 per cent from the previous three months, the national statistics institute said on Monday (Oct 31). That’s more than any analyst polled by Bloomberg had estimated.

Gains in services and inventories were behind the growth surprise, with trade acting as a drag. The number still represented a big slowdown from 1.1 per cent between April and June - mirroring a trend seen in France and Spain.

Inflation is partly to blame for that. It averaged 9 per cent in the third quarter before hitting an all-time high of 12.8 per cent in October, squeezing consumer spending and increasing costs for businesses.

The government’s latest forecasts see gross domestic product rising 3.3 per cent this year but only 0.6 per cent in 2023. Many analysts predict a recession.

For now, the figures will buoy Meloni’s efforts to balance slowing growth with continued fiscal aid to households and businesses struggling amid the energy crunch caused by Russia’s invasion of Ukraine.

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She’s already under pressure from coalition allies Silvio Berlusconi, who heads Forza Italia, and League party boss Matteo Salvini, to spend more, while at the same time trying to reassure international investors that she’ll keep the public finances in check.

The government must present a revised draft budget by year-end, and plans to aid the economy will mean a wider deficit than projected by the previous administration, according to people familiar with the matter, who see it at 3.9 per cent-4.5 per cent of output. BLOOMBERG