By Silvia Marchetti
ROME (MaceNews) – Italy’s government could cut growth forecasts for this year and potentially raise deficit targets in the wake of the Ukraine crisis and its repercussions on the Italian economy, according to ruling coalition sources.
“The extent of such impact is still to be fully weighed, but we might need to prepare ourselves to downgrade the previous fiscal outlook defined in October. The impact of the Ukraine crisis, particularly that of sanctions on the energy sector, are being analyzed,” said an official.
Officials expressed concern that fiscal plans might need to be revised downward and that the “consolidated post-COVID recovery path ahead” previously predicted is bound to “face bumps along the way” as has to take into account a new crisis.
Italy is gas-dependent and imports roughly 45 percent of its gas from Russia, with officials now saying Rome is looking to other energy sources and to boost imports from other countries of origin, including North Africa, and in particular Algeria.
The impact of European sanctions on Russian gas supplies and sales is pushing Rome’s government to ‘alternative energy plans’, but in the short term the economy will likely be rocked by higher gas costs and potentially also lower supply.
In the previous fiscal plan, the GDP growth target was set at roughly 4.7% this year, and the public deficit at 5.6% but developments in Ukraine could cut growth forecasts down to 4%, according to officials.
“Deficit of course is strictly tied to growth, so there could be a spike particularly if we need to approve more deficit spending to weather further spikes in energy costs weighing on family and firms, and tackle higher inflation,” said a source.
In the past five months, Rome’s government has spent EUR 15 billion to cushion the impact of rising energy costs, and it might need to spend more in coming months.
The costs tied to the implementation of direct EU aid – the pandemic recovery plan – are expected therefore to rise, as well, depending on the future inflation outlook.
The next revision by government to the fiscal plan will occur in April, when sources hope the economic picture will be more clear and the Ukrainian outlook may be less gloomy than it is today.
However, sources argued that Italy was in a better position to weather the Ukraine effect thanks to a current rosier economic outlook and improvement in the 2021 budget stance following a significant post-COVID emergency recovery last year.
According to recently issued official data, after a 9 percent GDP drop in 2020, in 2021 the Italian economy grew by 6.6 percent, while public debt dropped from 155.3 percent in 2020 to 150.4 percent last year.
“One thing is certain: the Russian attack on Ukraine soil, and the international crisis that has ensued which nobody knows how long it will last nor how it will evolve, will inevitably delay the exit from the two-year pandemic crisis for Italy, the entire eurozone, and all world countries directly affected by the Russian-Ukrainian war,” said an official.
Sources noted however how recent signals coming from the European Central Bank on possible “change of plans in delaying the exit from extraordinary pandemic measures” was encouraging and had a soothing effect on markets.
Italy trade lobbies are more pessimistic: sources have voiced concern that inflation this year could spike to over 6 percent, from current 4.8 percent, and that the Ukraine war could cut growth by at least one percent, down to or below 3 percent.