EU Expects Italy to Miss Debt-Reducing Goal on Slower Growth

Updated on
  • Italy deficit level for 2016 seen at 2.4 percent of GDP
  • EU forecasts fall short of Italian government's targets

The European Commission predicts Italy will fail to meet its debt-reduction goal this year and sees the country’s economy growing less than Prime Minister Matteo Renzi’s government estimates.

Italy’s debt ratio will remain at 132.7 percent of gross domestic product in 2016, the same level as last year, the European Union’s executive branch said Tuesday in its spring economic forecasts. The government last month predicted the debt ratio would fall to 132.4 percent this year.

Italy’s debt-to-GDP ratio is the second-highest in the euro area after Greece. In April, Finance Minister Pier Carlo Padoan said the reduction planned for this year “remains a top-priority goal for the government and is key to maintain market confidence.”

The EU also sees the Italian economy expanding 1.1 percent this year, less than the government forecast of 1.2 percent and slower than the commission’s winter forecast of 1.4 percent. The country’s deficit for this year is expected to be at 2.4 percent of GDP, the commission said, wider than the 2.3 percent planned by the government. 

Debt Pile

“Building sustainable growth on a pile of debt is a major challenge and all institutions are called to do their part in removing barriers to enhance stronger growth,” said Annamaria Grimaldi, an economist at Intesa Sanpaolo Spa in Milan after the release of the forecasts. The European Central Bank is “doing its part by keeping markets rates well below their long-term level,” she said.

The European Commission painted a generally positive outlook for Italy.

“The recovery of the Italian economy is projected to continue in 2016 and 2017 as domestic demand growth picks up,” the commission said. “Employment is forecast to keep on growing and inflation to remain subdued also due to limited labor cost pressures.”