Bank of Italy Cuts 2014 Growth Forecast Citing Sluggish Recovery

The Bank of Italy lowered its 2014 growth forecast for the country’s economy and said the recovery is subject to “considerable uncertainties.”

The Rome-based central bank predicts Italy’s gross domestic product will expand 0.2 percent this year, with “downside risks” attached to the projection, according to its quarterly economic bulletin. That compares with a January estimate for 0.7 percent growth.

“Despite signs of improving business confidence, the economic recovery is still struggling to gain traction,” the Bank of Italy said.

Italian Finance Minister Pier Carlo Padoan said in April he was confident the economy could beat the 0.8 percent growth prediction made by the government. While that forecast hasn’t been revised, Padoan pointed to recent weak macroeconomic data in a speech this week, saying they suggest a slowdown in Europe’s and Italy’s path toward sustained growth.

The Bank of Italy increased its growth forecast for 2015 to 1.3 percent from 1 percent, citing the positive effect of stimulus measures announced by the European Central Bank on June 5. The package included a cut in the benchmark rate to a record-low 0.15 percent, the introduction of a negative deposit rate and targeted long-term loans.

The impact of the rate cuts and a strengthened commitment to keep borrowing costs low on market and exchange rates “can be expected” to boost Italian GDP by 0.5 percentage point through 2016, the Bank of Italy said. The so-called TLTRO program could bolster growth by another 0.5 percentage point during that time, “assuming these operations are widely used and that their effects are transmitted in full to credit conditions,” it said.

Italy will publish preliminary GDP data for the second quarter on Aug. 6.

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