Rome spent much of last year at loggerheads with European Commission chiefs over its controversial budget plans, which the European Union claimed breached spending rules. After eventually getting their fiscal schedule through EU finance chiefs, fears over the dispute between the two sides reigniting were heightened this week on new growth fears. The Commission today claimed Italy’s debt pile is expected to expand further this year, while forecasting growth in the nation to remain sluggish. Brussels now says Italy is set to grow by 0.1 percent this year, down from the 0.2 percent it predicted in February.
The debt-ridden nation 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.
Latest figures show the economy grew by 0.9 percent over 2018.
Escalating concerns of a worsening trend for the wider eurozone economy, Italy remains remains the country with the lowest growth in the bloc, the Commission confirmed.
Brussels warned slow growth in Italy will impact on the country’s public finances, with both debt and deficit expected to climb far beyond what is allowed by EU fiscal rules.
Although no EU decision over possible disciplinary moves is expected before European elections on May 23-26, the new estimates could increase market pressure on the Italian government, which is already plagued by infighting.
Concerns over wider repercussions for the entire eurozone were shared by business writer John Daly.
In an opinion piece for the Irish Examiner, Mr Daly said the economic outlook for Italy “has the potential to trigger a potentially far greater financial crisis waiting to happen at the very heart of the EU”.
Italy has a sovereign debt of €2.4 trillion, which he said represents “an economic black hole capable of threatening the financial stability of the country – and, in turn, the future of the euro”.
Mr Daly said: “Bearing the label ‘the sick man of Europe’ for many decades, the Italian Government recently underlined this continued status by cutting its growth forecast for 2019 from 1 percent to 0.2 percent.
“While Italy’s public debt has reversed its downward trend to grow 1 percent in 2018, reaching 132.2 percent of GDP, it remains the highest in the EU – and seems destined to increase further, given the limited growth forecast for the rest of 2019.”
He continued: “Despite its status as the eighth-largest economy in the world, Italy’s economic problems have festered through a variety of issues going back to the 1970s.”
With no policy changes by the Italian administration, Italy’s debt would grow to 133.7 percent of gross domestic product (GDP) this year, the Commission estimated.
They went on to suggest this would peak at 135.2 percent in 2020.
Eurozone countries with a debt above 60 percent of GDP are required to gradually reduce it, but debt in Italy has been growing since last year.
The Italian government has already slashed its growth forecast for this year as it anticipates 0.2 percent GDP growth, 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.