By Silvia Marchetti
ROME (MaceNews) – Rome’s government is expected to clear a “gloomy” fiscal document by April 10 as the pandemic outlook remains uncertain and European aid might not be enough to kickstart the recovery, according to ruling coalition sources.
Premier Mario Draghi’s new cabinet will likely downgrade the growth target for this year to barely 4% and raise deficit and debt projections as Italy continues to grapple with the COVID-19 emergency, a slow vaccination campaign, and lagging EU aid.
“The previous growth estimate made by the cabinet of former premier Giuseppe Conte back in October was in the range of 6% for 2021, but the ongoing COVID crisis and partial lockdowns have worsened the picture. As we wait for EU aid we continue to solely rely on deficit funding, which is obviously going to push our deficit level this year to around 10%, maybe even beyond,” said an official.
The fiscal document will also present updated debt and deficit forecasts with sources arguing that the virus’ GDP impact depended on the duration of the emergency and time needed to complete the vaccination campaign. On Tuesday Italy exited from the Easter shutdown but sources warned that new targeted lockdowns could not be ruled out.
Sources argued that Italy was not yet in a situation “to confidently discuss going back to normal,” and would do it only very gradually. Without a stable and strong vaccination campaign well under way, growth is at risk and the picture remains gloomy, making estimates tougher.
“If the health situation does not significantly improve in the short term it is hard to actually say when the Italian economy will go back to properly functioning again,” said a source, adding that the UK and US cases are demonstrating that speeding up the vaccination campaign is paramount to paving the way to a recovery.
Rome’s fiscal plan does not take into account the potential impact of expected European resources, which are likely to be made available not before the end of summer. However, the impact on growth for this year of EU aid is likely to be very limited. “In an optimistic perspective, provided they are speedily and efficiently deployed in the last quarter, European resources could potentially raise the growth target by just a couple of decimal points,” said an official.
Public debt is also going to be revised upward by government. “In one year since the pandemic outbreak, Italy’s debt has risen by nearly 20% and will be getting close to 160%. In October, our deficit target was set at 7%, but if we keep earmarking resources for ailing workers and families through extra deficit spending this figure will keep rising. And we’re just at the end of the first quarter,” said another official.
The fiscal document, the first of Mario Draghi’s national unity cabinet, will form the pillar of the upcoming 2022 budget law with key measures and reforms to be implemented over the next three years. The fiscal plan, set to be forwarded to parliament by April 10 for final clearance, must then be sent to the European Commission for approval. In October it will be again revised based on the updated macroeconomic scenario.
This year, Rome’s government has already earmarked EUR32 billion in deficit spending to tackle the pandemic’s economic crisis and is expected to allocate more funds soon through another decree likely to be worth about EUR30 billion. Since the COVID-19 outbreak began, Italy has incurred more than EUR 120 billion in deficit costs. According to sources, the extra deficit spending decree will likely be approved alongside the updated fiscal plan over the next few days.
Sources expressed concern that the European pandemic aid, yet to land, might not be enough to kickstart the recovery. By end of summer Italy is expected to receive from Brussels some EUR 24 billion out of a total EUR 190 billion of the recovery and resilience fund set up to help EU member states tackle the COVID-19 economic impact.
“This is just a small part of what Italy has been promised by the EU and it is not yet clear when the EUR 24 billion will actually be made available. Also, the total EUR 190 billion figure will be used over a period of several years and according to our calculations the impact of EU aid on growth might not be as significant as expected,” said a source.
Italian officials said they hope the EU recovery fund will be strengthened with extra resources in future, giving it more “firepower” along the lines of the “massive” fiscal measures implemented in the US.