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Italy’s national statistics agency has halved its forecast for the country’s growth this year, highlighting the pressure on Prime Minister Giorgia Meloni’s rightwing government to keep public spending in check.
The Eurozone’s third-largest economy is on track to grow just 0.5 per cent this year, down from 1 per cent forecast in June, Istat said in its economic update on Thursday. The agency also slashed its GDP growth projection for 2025 to 0.8 per cent, down from 1.1 per cent six months ago.
The Italian economy’s slowdown comes as Europe’s economic powerhouse, Germany, is in its deepest slump since the early 2000s and as France, the second-biggest economy, is in political turmoil after the parliament on Wednesday ousted the government led by Michel Barnier over his attempt to pass a belt-tightening budget.
Unlike Barnier, Meloni on Thursday succeeded in passing the first part of the 2025 budget, even as the worsening growth forecast adds pressure on her to rein in some of the planned spending for next year. The budget was designed on the basis that GDP would grow 1 per cent this year and 1.2 per cent in 2025.
Italy, like France, is subject to the EU’s “excessive deficit procedure”, which puts its fiscal plans under increased scrutiny to bring the public deficit below the bloc’s target of 3 per cent of GDP. Finance minister Giancarlo Giorgetti has pledged to craft a budget that aims to cut the deficit from 4.3 per cent this year to 3.6 per cent in 2025 and less than 3 per cent the following year.
A finance ministry official on Thursday said the growth forecast revision was “unfortunately, no surprise”, given the “very serious problems in the industrial sector” in Italy and Europe as a whole.
“The government is doing its homework to make the sector grow, but an overall strategy at European level for industrial revitalisation is needed soon,” the official added.
Eiko Sievert, senior director for sovereigns at Scope Ratings, said Rome would likely struggle to meet its fiscal deficit targets given the current economic headwinds.
“There are still plenty of risks for Italy and we shouldn’t sit back and think everything is fine,” Sievert said. “The government forecasts seem on the optimistic side.” He added that accelerating the implementation of Italy’s €194bn share of EU recovery funds will provide more support to growth.
The Italian parliament on Thursday approved a variety of taxation and spending schemes as part of the budget.
Among the measures given the go-ahead is a one-off €100 Christmas bonus for families who have at least one child and household incomes less than €28,000 per year. About 4.5mn families will be eligible to receive the bonus.
The government also decided to extend a scheme allowing taxpayers to pre-pay their taxes for the next two years, regardless of how much their actual incomes turn out to be.
Opposition parties had proposed nearly 175 amendments to the fiscal decree, but the governing coalition — which has a solid majority in parliament — has rejected all of them.
However, Sievert said Meloni’s government — now the most stable of the major European economies — would ideally use its political strength to undertake more ambitious fiscal consolidation to bolster Italy’s resilience to future external shocks.
“It’s moving in the right direction — the question is, is it moving fast enough?” he said. “Italy’s debt is still higher than France’s and that makes Italy vulnerable to external shock.”