NEWS » What is the true state of Italy's economy?

What is the true state of Italy's economy?

In Spring Italy will hold its general elections. A clear picture of the economic situation of the country is therefore needed more than ever, but the truth is deep-set, and when it comes to economy, difficult to discern. 

According to the European Commission Vice-President Jyrki Katainen, Italy's accounts are not improving. In his opinion Italians should know what the real economic situation is in their country.

Italian economy seemed finally to get underway, thanks to a stronger-than-expected economic growth and low interest rates, which reduced the cost of Italy’s huge public debt.

In September, Gentiloni’s government increased its GDP growth forecast for this year to 1.5 percent from 1.1 percent, and rose next year’s outlook to 1.5 per cent from 1.0 per cent. The budget, approved in October, included measures to raise youth employment, tackle poverty and encourage investments before the election in the spring.

However, the budget deficit might be lowered to 1.6 per cent of gross domestic product (GDP) from a targeted 2.1 per cent this year, avoiding in this way painful pre-election belt-tightening measures.

The financial situation in Italy, according to Mr Katainen, is due to get worse with Italy’s deficit in 2018, now predicted to be £3.1billion (€3.5billion) more than previously stated in spring by Paolo Gentiloni’s administration. The debt-to-GDP ratio is targeted to reduce in 2018 to 130.0 per cent from a targeted 131.6 per cent this year.

The problem is that, in the face of a GDP increase, well ahead of expectations, Italy risks not meeting the agreed targets on the reduction of its "structural" budget deficit.

According to the newspaper “Il corriere della sera” the Eu is going to send a formal letter asking for clarification. 

Italy had been asked for a structural adjustment of 0.6% of GDP in 2018. The government only made a commitment of 0.3% when it submitted its budget law in mid-October. However, the Commission has estimated that the current structural effort is only 0.2% and considers at risk the 2017 correction from a structural point of view.

The letter Brussels is about to send to Rome concerns the 2018 Budget Law: the commission will call for more formal commitments on improving public finances and further clarifications. A decision on the Italian measure will be taken in May next year on the basis of all the 2017 data.

Giulia Lombardo

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