Can Italy's nascent recovery be sustained?

As he visited Barack Obama in Washington last month, Matteo Renzi, Italy's prime minister, offered a fairytale analogy about the eurozone's third-largest economy. "For too long our country has been like Sleeping Beauty," he said. "But we are here to wake her up," he added.

This week, Italians could finally point to some solid evidence that their country is finally emerging from its slumber. Gross domestic product grew by 0.3 per cent in the first quarter, which may seem modest, but marked the best quarterly performance in four years and an exit from a bruising triple-dip recession. The question is whether this nascent recovery can be sustained, or fizzle out. Here are four things to watch:

The 0.3 per cent increase in output in the first quarter was notable for breaking a lengthy negative streak. Italian GDP had not risen at all since mid-2013, and had not performed as well since early 2011. But this week was also a major turning point because it indicated that the recent strength in "soft", or survey based economic indicators, such as consumer and business confidence indices, were not off the mark, as they have been in the past. Instead, it is showing up in real - or "hard" - economic data, like GDP figures. In the next few weeks and months, it will be key to assess whether that convergence continues, or ends.

In large part, the Italian economy - like the rest of the eurozone - has been juiced up by external factors. Low oil prices have given households more disposable income and a drop in the value of the euro has bolstered exporters which form an important chunk of Italian business. The European Central Bank's quantitative easing programme has also helped keep interest rates low, which may have spurred extra borrowing. But there are still doubts on the Italian economy's ability to stand on its own two feet - especially if those factors begin to reverse, as they have partially in recent weeks. Both consumption and investment in Italy have shown some tentative signs that they are picking up, and may even accelerate. But it will take more months of data to be confident that they can truly drive a sustained recovery.

The Italian labour market has been a discordant note to the better economic mood-music in recent months. Unemployment actually rose back up to 13 per cent in March, marking the second consecutive monthly increase after what looked like the beginning of a steady decline. Youth unemployment, which is well over 40 per cent, also rose. The data has puzzled economists because it is not being driven by an expansion of the labour force, as discouraged workers finally believe they have a chance of finding jobs again, which would be consistent with the early stages of a recovery. Instead, it has been caused by a decrease in the number of employed workers, and an increase in the number of unemployed workers. Unemployment is often a lagging indicator, which may explain this, but eventually joblessness should begin to drop consistently, and for the right reasons.

The budding rebound may partially be attributable to political stability. Domestically, Mr Renzi does not appear to be facing major threats to his leadership - either within the ruling centre-left party, or from a fractured and weakened opposition. Combined with his generally business-friendly agenda of economic reforms, this has arguably created an improved climate for companies to put money into new projects. Internationally the situation has improved. Last year's economic setbacks for Italy are often blamed on the Ukraine crisis given the deep business ties with Russia. But even if it is far from resolved, the Ukrainian conflict has at least stabilised. A new flare-up could be very destabilising economically for Italy, as could - for different reasons - a Greek exit from the euro or a default.

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