Italy: Mild fiscal expansion – ING

Paolo Pizzoli, senior economist at ING, points out that in a cabinet meeting held on Monday evening, the Italian government approved the updating note to the Economic and Financial Document (EFD), which sets the macroeconomic framework for the upcoming budget.

Key Quotes

“A cross reading of the relevant tables shows that the government is aiming at a mildly expansionary budget. According to the government, this should allow Italian economic growth to accelerate from 0.1% in 2019 to 0.6% in 2020 (against a trend forecast of 0.4%).”

“The government aims for a 0.2% increase in the structural deficit, which could be qualified as a moderate fiscal push. As far as headline metrics are concerned, the EFD foresees the headline deficit stabilizing at 2.2% of GDP next year. On the back of these planned deficit developments, the debt-to-GDP ratio is expected to peak this year at 135.7% (a revision of past GDP data has inflated the debt ratio), and start a modest decline in 2020, courtesy of some privatization intakes. In the document, the government admits that such a profile would not pass current debt-rule tests.”

“With zero GDP growth expected in 2019, the Italian economy is likely to be the growth laggard in the eurozone. To the eyes of a growth-conscious new commission, this could possibly justify some tolerance to a mild counter-cyclical loosening.”