By Silvia Marchetti
ROME (MaceNews) – Italy’s government is expected to raise its GDP growth forecast for this year to 6% and lower projected fiscal deficit and debt levels, but key spending measures will have to be scaled back to stabilize Italy’s finances, said ruling coalition sources.
“The current scenario has improved compared to our previous forecast of 4.5% growth set in April, but in order to make sure that we also start decreasing public spending, all ruling parties must join efforts in deciding which pro-growth measures are really needed, and which (we) just can’t afford to fund next year,” said an official.
The budget deficit is expected to be below 10% by the end of this year (previously estimated at 11.8%), while public debt should slightly decline to approximately 155% of GDP. Growth is also expected to be stronger in 2022, above 4%.
According to sources, the upped GDP forecast mainly reflects the positive impact of European pandemic aid, of which a first tranche of EUR 25 billion landed this summer and more is expected by year-end. By 2026, Italy will be getting some EUR 200 billion for post-COVID economic reconstruction but it needs to deploy it effectively to have a significant impact on growth in the long run, warned sources.
The projected spike in GDP, one of the steepest in Italy’s history, is not as impressive as it might appear, according to a Democrat deputy.
“This is also due to a natural bounce-back effect: last year our economy shrunk by nearly 9%, one of the biggest recessions at European-level. With the end of lockdowns and the completion of the vaccination campaign things are starting to go back to normal. The real challenge now is making sure that this recovery is stable and sustainable,” the deputy said.
The updated fiscal targets are to be approved next week during a key cabinet meeting and will form the pillar of the next budget law, set to contain crucial pro-growth measures for firms and workers.
Officials, however, warned that “efforts in tightening public finances would be nullified” if ruling parties continue to bicker over which measures to adopt next year, “each pushing to have their own requests inserted” within the budget law framework, as one put it.
“In July, debt reached a record high, rising by over EUR 30 billion from a month earlier. It will start to gradually go down, but only if we’re all responsible. Once the recovery is really on its way, public support to the economy must slow down. We have to come to terms with this and properly, gradually handle the transition to a new normal,” said a source.
“It’s impossible to make every party within the coalition happy. The 5 Stars are pushing to refinance the citizenship wage, which doesn’t really incentivize the jobless to look for a job, and on key tax and pension reforms, parties want it their way,” the source said.
There are other top priorities which need to be addressed first, argued officials, including re-funding unemployment benefits with some EUR 5 billion to support laid-off workers.
Other challenges ahead will be finding additional funding resources to allow needed tax cuts — for which there is only EUR 3 billion available — and changing the current rules on pension age and years of contributions, sources said.
The final budget law containing measures and investments for the next three years must be cleared by parliament and forwarded for approval to the European Commission by year-end.