by Eric J. Lyman

ROME, Aug. 31 (Xinhua) -- Italy's sustained political crisis is starting to act as a drag on Italy's already slow-growing economy, said economic analysts recently.

The political situation in Italy has been unstable ever since the country's general election nearly 18 months ago, with the League and the Five-Star Movement -- the two parties backing the government of Prime Minister Giuseppe Conte until it collapsed on Aug. 20 -- consistently clashing over reform plans. But things took a turn for the worse over the last month, when the League, the nationalist party led by Matteo Salvini, ramped things up.

Now Conte is in the midst of forming a new government, this time with the center-left Democratic Party joining with the Five-Star Movement to back him. Once the new government is finalized, its first priorities will be to look for a way to delay a major increase in the country's value-added tax scheduled for Jan. 1, 2020 and to navigate the complicated process that will produce next year's national budget.

Though markets responded positively to news about the alliance between the Democratic Party and the Five-Star Movement, they had generally weakened in the lead-up to that development, and economic analysts said uncertainty stemming from the country's political situation is starting to take a toll on the country's economic growth prospects.

"It is impossible for a country to go through the level of political turbulence Italy has gone through without it having an impact on the economy," Javier Noriega, chief economist with investment bankers Hildebrandt and Ferrar, told Xinhua.

Paolo Guerrieri, a former member of the Italian Senate who now teaches political economics at Rome's La Sapienza University, the College of Europe in Belgium, and the Paris School of International Affairs, agreed.

"Companies don't invest in themselves or expand when they don't know what will happen next," Guerrieri said in an interview.

According to the latest data from Italy's National Statistics Institute, consumer confidence, manufacturing confidence, and economic sentiment have all continued a year-long trend downward.

The Italian government officially forecasts the Italian economy will grow 0.2 percent this year (down from initial forecast of 1.0-percent growth at the start of the year). But Lorenzo Codogno, founder and chief economist of LC Macro Investors Ltd., and a visiting professor at the London School of Economics, predicts the economy will contract by 0.1 percent for the year as a whole, and will grow only 0.3 percent in 2020, compared to a government forecast of 0.8 percent growth next year. Those figures would make Italy the slowest-growing major economy in Europe.

"On paper the new government is supposed to be more fiscally responsible" than the previous Conte government featuring the League and the Five-Star Movement, Codogno told Xinhua. "But its medium-term challenges remain daunting."

In addition to the political uncertainty, the export-heavy Italian economy is also under pressure from slowing economic growth across the European Union.

The first formal signal about the new government's economic priorities will come on Sept. 27, when the Ministry of Economy is scheduled to release its planning document with updated economic and budgetary projections, part of the 2020 budget negotiation process. Enditem

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