Italy cuts GDP growth forecasts, hikes deficit and debt

FILE PHOTO: People buy fruit and vegetables in a street market in Rome
FILE PHOTO: People buy fruit and vegetables in a street market in Rome, Italy, August 11, 2016. REUTERS/Max Rossi

April 9, 2019

By Giuseppe Fonte and Gavin Jones

ROME (Reuters) – Italy on Tuesday cut its growth forecasts for this year and next while hiking the budget deficit and public debt, underscoring the economic woes faced by the populist ruling coalition.

Gross domestic product in the euro zone’s third largest economy will increase just 0.2 percent this year, the government said, cutting a projection of 1.0 percent it made in December.

The slowdown in growth hurts public finances, and the Treasury raised this year’s budget deficit target to 2.4 percent of GDP from a 2.04 percent goal fixed in December after a drawn-out tussle with the European Commission.

The new deficit target is the same as the one the Commission rejected last autumn as being too high and breaking EU rules.

Italy, whose public debt is proportionally the highest in the euro zone after Greece, is struggling to hold its finances in check while keeping costly promises made by the right-wing League and the anti-establishment 5-Star Movement.

Successive Italian governments have promised and failed to get the debt on a downward path since the 2008 financial crisis, and the latest forecast sees it rising this year to a new post-war high of 132.6 percent of GDP.

Unusually, no news conference was held after the cabinet signed off on the Treasury’s Economic and Financial Document (DEF), which forms an early framework for the 2020 budget.

However, the leaders of both ruling parties issued statements renewing a commitment to cut taxes.

“We will push on, getting the country going again, stimulating growth and helping families that really need it, without trumpeting false promises as has been done in the past,” said 5-Star chief Luigi Di Maio.

(Reporting by Giuseppe Fonte; Writing by Gavin Jones; Editing by Mark Heinrich)

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