Italy Cuts Growth Forecast for 2016 and 2017--Update
September 27 2016 - 07:39PM
Dow Jones News
By Giada Zampano
ROME -- Italy's government on Wednesday cut its already cautious
growth forecasts for this year and next year while raising its
budget deficit targets, a move that risks sparking new tensions
with the European Commission over Rome's fiscal policies.
In its new economic forecasts, which are a first step in the
process of making the 2017 budget, Prime Minister Matteo Renzi's
government sees the Italian economy growing by only 0.8% this year
and 1% in 2017, down from the previous forecasts of 1.2% for this
year and 1.4% in 2017.
The budget deficit target, which is closely watched by the
Commission, was raised to 2.4% of gross domestic product this year,
from the previous 2.3%, and was increased to 2% from 1.8% in
2017.
Mr. Renzi and his finance minister, Pier Carlo Padoan, defended
the government's new economic targets, saying they are fully in
line with Rome's European commitments. The Italian government
invoked two "extraordinary circumstances" -- the devastating
earthquake that flattened towns in central Italy in August killing
almost 300 people and the migration emergency -- to justify
additional fiscal flexibility. The two emergencies will result in
additional spending, which would increase the budget deficit target
by an additional 0.4% in 2017, Mr. Renzi said.
Last year, the Italian budget has attracted criticism from the
European Union, which is worried that the country -- one of the
most indebted in the world -- is slowing the pace of its fiscal
tightening. Italy's debt is the second highest in the eurozone
after Greece, and is now seen growing to 132.8% of gross domestic
product this year from 132.3% in 2015, while it is expected to fall
to 132.2% in 2017.
In a press conference following the cabinet meeting that
approved the new forecasts, Mr. Padoan said the debt-to-GDP ratio
isn't falling this year because of lower-than-expected inflation.
He also stressed that the government's privatization plans, aimed
at slashing debt, were slowed down by difficult market conditions.
"We don't want to sell off [public assets]," Mr. Padoan said.
Mr. Renzi confirmed that the new budget will include measures
aimed at allowing workers over 60 to retire earlier, while also
avoiding new tax hikes.
The Italian premier is under increased pressure to revive a
moribund economy, ahead of a key constitutional referendum on Dec.
4 that could decide his political future. A defeat in the
referendum could send the country into political upheaval given
that Mr. Renzi's approval rating has fallen steadily as his
economic measures failed to reignite growth.
Gross domestic product in Italy -- the eurozone's third-largest
economy -- remained flat in the second quarter, with weak domestic
demand and a contraction in the industrial sector putting at risk
the already timid recovery expected for the second half of the
year.
Italy's zero growth contrasted with a better-than-expected
performance of Germany's economy, which grew 0.4% in the second
quarter, highlighting Rome's role as a weak spot in Europe.
Write to Giada Zampano at giada.zampano@wsj.com
(END) Dow Jones Newswires
September 27, 2016 19:24 ET (23:24 GMT)
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