Italy cuts growth forecast sharply lower to 0.2%

Italy's populist government has confirmed that the economy is effectively stagnating. It also raised its projected budget deficit as it seeks to maintain early retirement and basic income programs.

After a meeting in Rome late on Tuesday, Cabinet ministers from the ruling coalition of the anti-establishment Five Star Movement (M5S) and anti-immigrant League, formally cut the target for full-year growth in 2019 to just 0.2%, down from the previous figure of 1%.

They also raised the forecast for this year's budget deficit to 2.4% of gross domestic product (GDP), which risks another dispute with the European Union. Rome and Brussels had previously agreed the deficit would be pegged to 2.04%.

The government is going ahead with two controversial programs: the quota 100 early retirement scheme and the citizens' wage basic income. The OECD's country report issued on Monday suggested the measures would make Italian finances unsustainable.

However, the Italian presidency issued a statement pledging to respect "targets set by the European Commission."

Politics | 19.12.2018

The figures include the estimated impact of government measures already agreed in an effort to support the economy.

Matteo Salvini, deputy prime minister and leader of the League party

Gloomy outlook

The new reports reflect the pessimism around the Italian economy, which fell into recession at the end of last year, mainly on the back of weak exports. Last month, Economy Minister Giovanni Tria warned Italy was heading for zero growth this year. The European Commission and OECD had forecast just 0.2% growth, and the International Monetary Fund issued its estimate on Tuesday of 0.1%.

OECD Secretary-General Angel Gurria said: "For Italy GDP (growth) will be around zero. We think a bit less, the premier a bit more, but we concur on the slowdown."

Italy's public debt is a heavy burden on the economy, at 132% of GDP, the €2.3 trillion ($2.6 trillion) is way above the 60% EU target. In the eurozone, only Greece has a debt higher as a proportion of its economy.

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