By Silvia Marchetti
ROME (MaceNews) – The Bank of Italy on Friday cut country growth forecasts for 2022-2023 on fallout from the war in Ukraine and energy price hikes, but sees ‘robust’ signs of recovery as government aid to struggling families and European Union-wide pandemic investments start to bear fruit.
GDP growth is now projected at 2.6% this year, 1.6% in 2023 and 1.8% in 2024, according to estimates by the bank. In its January forecasts, released ahead of the Russian-Ukrainian war, growth targets were 3.8% in 2022, 2.5% in 2023 and 1.7% in 2024, which is the only upped figure.
The slight 0.1% improvement in 2024 takes into account the full impact of government-funded aid to firms and families to tackle soaring energy prices triggered by the Russian invasion of Ukraine, and new investments made with direct EU pandemic aid through the so-called ‘Recovery and Resilience National Plan’.
Under the EU plan, Italy is set to be the greatest beneficiary among peer countries, with a total of €200 billion from Brussels to fund over the next three years strategic infrastructure and an ecological transition aimed at boosting sustainable development.
The Bank of Italy still sees a “robust” recovery in the second quarter of this year compared to the first quarter, and a significant pickup of economic performance next year as war tensions are expected to abate but the outlook remains uncertain.
“The possibility of a ‘favorable’ scenario envisaging a rapid exit from the war and an end to the tensions tied to it has narrowed, making it less likely to occur and raising the complexity and uncertainty of all forecasts,”said the BOI, adding that depending on how the picture evolves there will be different outcomes for the Italian economy, which still relies on Russian gas for 40% of its energy imports.
The most likely base-scenario according to the Bank of Italy sees the war lasting one year, up to December, but limited to the current geographical area, while it rules out at present the risk of an adverse scenario of conflict worsening and a subsequent energy export stop of Russian energy to Italy.
The uncertainty impact of the Russian-Ukrainian war on the economy is counterbalanced by the financial aid recently given by Rome’s government to support firms and families hit by soaring energy bills. More measures could also be on their way.
A official from the Democrat party within the ruling majority said the coalition was honing more financial aid to further cut down on household energy bills but “without having to raise deficit spending and therefore public debt, already under strain.” A new package of measures could land over the next few weeks, depending on the evolution of the war.
According to the BOI, government aid and the EU-wide pandemic funds will trigger a 3.5% increase in GDP over the next two years, of which 2% alone will come from investments made by Italy through EU resources, divided between grants and loans.
“We just received our first tranche of EU aid amounting to roughly €30 billion, and have summoned territorial bodies and local administrations to kickstart the first key strategic infrastructure projects as soon as possible, by this summer,” said the official.