Italy’s debt to climb as economy stalls, shedding jobs: EU

BRUSSELS: Italy’s huge debt pile is expected to rise this year as the country’s economy limps along, the European Commission (EC) said on Tuesday in quarterly forecasts that could reignite a dispute with Rome over its budget.

Brussels marginally cut its 2019 growth outlook for Italy to 0.1 per cent from an already gloomy 0.2pc. The economy expanded 0.9pc last year.

The commission also said it expected growth in the wider eurozone economy to slow more than previously estimated, to 1.2pc.

But its forecast for Italy is the lowest in the bloc, and the commission said it expected that to weigh on the country’s public finances, with debt and deficit levels seen climbing far beyond EU fiscal rules.

The EC’s forecasts were drawn up before data showed Italy emerged from recession in the first quarter with stronger-than-expected growth of 0.2pc, and the government says its policies to raise welfare benefits will support domestic demand.

Economy Minister Giovanni Tria shrugged off Brussels’ forecasts, saying they were broadly in line with the government’s own projections. Rome forecasts growth of 0.2pc this year and 0.8pc in 2020, 0.1 points above the EC for each year.

Tria told reporters in Paris that the commission’s public finance projections for next year were “more political than economic”, because they took no account of the government’s commitments to reduce the deficit in its 2020 budget.

Although no EU decision over possible disciplinary moves is expected before European elections on May 23-26, the more downbeat estimates could increase market pressure on a coalition government in Rome already plagued by infighting.

Milan shares fell after the EC forecasts were published and the yield gap widened between Italian government bonds and the safer German Bunds.

The commission — which came close to penalising Italy over an excessive deficit target before the two sides reached an agreement in December — will assess states’ compliance with EU rules at the beginning of June, economics commissioner Pierre Moscovici said.

Without policy changes, Italy’s deficit would be 2.5pc of GDP this year, the commission said, lowering a 2.9pc forecast it made in November.

The bloc’s executive forecast the deficit would climb to 3.5pc in 2020, beyond the EU’s 3pc ceiling. Italian government has targeted a deficit of 2.4pc this year and 2.1pc in 2020.

The commission expects Italy’s debt to grow to 133.7pc of GDP this year and peak at 135.2pc in 2020, while Rome is targeting 132.6pc this year and 131.3pc in 2020.