Debt-ridden Rome slipped into recession territory at the end of the last year after a second consecutive quarter of decline was recorded for the last three months of 2018. The economy contracted by 0.2 percent in October to December of last year, after a decrease of 0.1 percent in July to September. In a sign that the worse could be yet to come for Italy, the government subsequently slashed its growth forecast for this year, as the nation braces for an economic slowdown to dent public finances. Rome is expecting 0.2 percent gross domestic product (GDP) growth for this year, down for a previous projection made in December of 1.0 percent.
The Treasury also announced it is ramping up the 2019 budget deficit target to 2.4 percent of GDP, up from a 2.04 percent goal fixed in December.
The adjusted growth forecast came after Italy endured months of wrangling with European Union (EU) finance chiefs over its controversial budget, which was accused of not being sufficient to tackle debt.
It was revealed today how public debt in Italy grew to 132.2 percent of its output in 2018 from 131.4 percent in the previous year, according to Eurostat.
The European Commission, in charge of monitoring eurozone states’ budgets, refrained in December from starting disciplinary steps against Italy’s over its growing liabilities.
But it then predicted that the debt would be at 131.1 percent of Italian gross domestic product (GDP) in 2018.
The Commission has said it would assess Rome’s compliance with EU fiscal rules, including the requirement to cut debt, in June.
The EC said it would take into account the final debt data from Eurostat, its own forecasts for debt developments due in May and Italy’s report on fiscal plans for the next three years.
EU economics commissioner Pierre Moscovici said the new EU forecasts, due on 7 May, will acknowledge the current economic slowdown.
Capital Economics analyst Jack Allen warned how the Italian economy is at risk of remaining static, with further repercussions for the entire eurozone.
He said: “Italy’s economy is essentially going to flatline in the medium term.
“This would be a bigger problem than the previous eurozone crisis and could once again endanger the single currency itself.”
The Italian government has previously stated they will attempt to lift the economy in the second half of the year by a stimulus package that includes tax breaks on investments, lower property taxes on factories and warehouses, and simplified procedures for public tenders.
The government will update its targets again in September.
Data today showed the overall debt in the eurozone fell to 85.1 percent of GDP last year from 87.1 percent in 2017, Eurostat said.
The 19-country currency bloc’s aggregated budget deficit also dropped to 0.5 percent of GDP from 1.0 percent in 2017.