Italian Debt Load Up This Year, Above 130% in 2018, EU SaysBy
Tighter monetary policy to affect public finances: forecast
Brussels sees government actions on banks unclogging lending
Italy’s ratio of debt to economic output will rise slightly this year and won’t fall below 130 percent through 2019 as the pace of recovery slows, the European Commission said.
The ratio will increase to 132.1 percent of gross domestic product from 132 percent in 2016, the Brussels-based EU executive arm said on Thursday in its autumn economic forecasts. That contrasts with a fall in the ratio to 131.6 percent targeted for 2017 by the government in Rome, which also sees it “more rapidly” declining in the years after that.
With a more sustainable growth pace in the first half of the year, the euro region’s third-biggest economy benefited from a resilience in consumer demand and rising sales of its good and services abroad. An extension of the economic recovery in 2018 and 2019 would help the government rein in the euro region’s second-largest debt ratio.
Italy’s economic recovery “accelerated in 2017, supported by external and domestic demand, but fading tailwinds and lower medium-term growth prospects are expected to moderate growth towards the end of the forecast period” which is 2019, the Commission said.
While matching the government’s forecast of a 1.5-percent economic expansion this year, the Commission said it expects a less marked expansion after that as the “export growth is predicted to lose some strength due to the appreciation of the euro.” The Commission sees 1.3 percent economic expansion next year in Italy, with 1 percent in 2019.
“It has been a long time since Italy achieves such growth,” European Union Economic and Monetary Commissioner Pierre Moscovici told reporters in Brussels on Thursday, citing the projection for the nation’s growth this year. “It’s true that we have a more cautious forecast for 2018 and 2019, but the 2019 forecast has to be taken with a pinch of salt, because we are working on a non-policy-change assumption for that forecast.”
Finance Minister Pier Carlo Padoan told lawmakers this week that the GDP may have increased by up to 0.5 percent quarter-on-quarter in the three months through September and that the economy is now in a position to expand at an annual pace of 2 percent in the years to come.
The Commission warned that the European Central Bank’s “expected gradual move to a less accommodative monetary policy stance is forecast to affect financing conditions and soften investment spending.”
To offset that effect, “the recent government actions to address acute risks in weaker banks could help unclog bank lending and further reduce downside risks,” the forecast also said.
— With assistance by Giovanni Salzano, and Zoe Schneeweiss