Italy cuts growth forecasts and says debt set to rise

THE Italian government on Tuesday (Apr 9) cut its growth forecast for this year and next, reflecting an uncertain international outlook, and said public debt was set to rise despite its efforts to curb the annual budget deficit.

In its Economic and Financial Document, the Treasury forecast gross domestic product in the eurozone’s third-largest economy to grow by 1 per cent this year, down from a 1.2 per cent goal in September.

The latest projection remains significantly above the consensus of most independent bodies, who project Italian growth of around 0.7 per cent.

The government set a GDP growth estimate of 1.2 per cent next year, down from the previous 1.4 per cent.

Economy Minister Giancarlo Giorgetti told reporters the revisions factored in “a complicated international and geopolitical framework,” referring to the conflicts in Ukraine and the Middle East.

On the public finance front, the government confirmed its 2024 budget deficit projection at 4.3 per cent of national output.

If achieved, that will mark a sharp reduction from the 7.2 per cent ratio registered in 2023, when Rome far overshot its official target due to the impact of costly fiscal incentive schemes for home renovations.

Giorgetti said these incentives had cost the public purse some 219 billion euros (S$320.05 billion) over the last four years. The most generous, the so-called ‘Superbonus’, allowed homeowners to reclaim from their taxes 110 per cent of the cost of energy-saving building work.

For 2025, the Treasury nudged up its deficit projection to 3.7 per cent from a previous 3.6 per cent goal, while the fiscal gap is seen at 3 per cent in 2026, slightly above the 2.9 per cent target set last year.

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Giorgetti said these estimates were forecasts rather than policy targets, as EU fiscal rules are currently being reviewed so the government lacks a clear reference framework to work with.

He said he was ready to intervene with corrective measures to “exactly” meet the previous, slightly tougher deficit targets for the next two years.

Italy’s public debt, the second largest in the eurozone as a proportion of output and under close scrutiny by rating agencies, will follow a rising trend over the next three years, according to the latest forecasts.

Giorgetti said this was due to the “devastating impact” of the Superbonus, which will continue to weigh on debt despite government curbs on the incentives, as people detract the building work completed from their tax bills.

Debt is estimated at 137.8 per cent of gross domestic product this year, up from the 137.3 per cent reported in 2023. The ratio will rise to 138.9 per cent in 2025 and to 139.8 per cent in 2026.

To keep the trend in check, Giorgetti said he would press ahead with plans to raise around 1 per cent of GDP, or roughly 20 billion euros, from asset sales through 2026.

Despite the commitment to rein in the deficit, the government said it aimed to extend to 2025 temporary cuts to social contributions in place this year and, if budget constraints allow, prolong income tax cuts for people earning up to 28,000 euros per year. REUTERS