Bank of Italy Lifts Growth Forecast to 1%, Sees Unemployment Rate Rising

The Bank of Italy raised its growth forecast for Europe’s fourth-biggest economy this year, saying export gains will drive the recovery as rising unemployment weighs on domestic demand.

Italy’s gross domestic product will expand 1 percent, more than the 0.7 percent predicted in January, the Rome-based central bank said today in a report. The country’s joblessness will keep rising “to about 9 percent,” it also said. That’s higher than the 8.4 percent in the first quarter.

Italy’s growth “will be supported by foreign demand as in similar economic cycles in the past,” the bank said. “The reviving vigor of exports has not been coupled with an improvement in domestic demand.”

The $2.1 trillion economy expanded less than economists originally forecast in the first quarter as weak consumption limited gains in exports, which were helped by the decline of the euro in the period. The currency’s slump was fueled by investors concerns that Greece’s near-default signaled a spreading regional debt crisis. The Italian Senate today passed measures to reduce the country’s budget deficit as part of a coordinated austerity plan in the euro region.

Bank of Italy Governor Mario Draghi said today in a speech delivered at the Italian Banker’s Association in Rome that the impact of the government’s budget cuts, worth 25 billion euros ($32 billion) over the next two years, can only be gauged in the “coming months.”

The Bank of Italy kept its growth forecast for Italy next year at 1 percent, according to today’s report.

To contact the reporters on this story: Lorenzo Totaro in Rome at ltotaro@bloomberg.net

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