EU Forecasts a ‘Mild’ Italy Recovery Starting This Quarter

The Italian economy will begin to recover this quarter after a “moderate” contraction in the third quarter, the European Commission said today.

“Improved business confidence since the early summer, mainly driven by a positive assessment of export orders, foretells a gradual mild recovery in output as from the fourth quarter of 2013,” the Brussels-based commission said today in its autumn forecasts.

That’s in line with the Italian government’s outlook, which sees the economy recovering in the current quarter from its longest recession since World War II. Italy will keep its deficit target within the 3 percent limit this year and reduce it to 2.7 percent next year, according to the commission’s forecasts. Italian Prime Minister Enrico Letta’s government is targeting a deficit of 2.5 percent of GDP next year, according to its budget plan.

The country’s gross domestic product will contract 1.8 percent this year, in line with government estimates, according to the EU. The commission predicted a 1.3 percent contraction in its previous forecasts in May. The EU expects the Italian economy to expand 0.7 percent in 2014, while the government sees a 1.1 percent rise next year.

Italy entered the recession in 2011 as a global slowdown aggravated the effects of waning productivity. The contraction got deeper as domestic demand weakened amid the mix of tax increases and public spending cuts passed by Letta’s predecessor, Mario Monti, to contain the euro region’s second-biggest debt.

The commission warned that Italy may miss its balanced budget target in 2015 without new measures. The EU expects the structural deficit to narrow 0.7 percent next year and widen to 0.9 percent in 2015.

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