News Analysis: Brussels lowers growth prediction for Italy, but outlook seen as mostly unchanged  

0 Comment(s)Print E-mail Xinhua, November 12, 2019
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ROME, Nov. 11 (Xinhua) -- The European Commission has lowered its predictions for economic growth in Italy, but economists and analysts said near-term prospects for economic growth were mostly unchanged.

The commission said last week it now expected Italy's economy to grow just 0.4 percent in 2020, down from its previous prediction. That means the commission's predictions are now below the 0.6 percent growth rate predicted by the Bank of Italy.

The commission gave no indication that the predictions of lower growth would change its outlook for Italy's 2020 budget plan, which must be finalized by the end of this year. A year ago, Italy and the commission locked horns for weeks over the deficit levels in the government's 2019 budget. But in October, Vice President of the European Commission for the Euro and Social Dialogue, Valdis Dombrovskis, said the budget plan for 2020 was unlikely to cause problems.

The 2020 plan predicts a budget deficit equivalent to 2.2 percent of the country's gross domestic product, above the 2.1 percent target the commission recommended. But the 2.2 percent target is based on the Bank of Italy's estimate of 0.6 percent growth. That means the deficit could be larger as a percentage of the country's gross domestic product if growth is slower than the Bank of Italy suggests since the gross domestic product would be smaller.

"Many things could change between now and the end of next year but it looks like the European Commission is giving Italy some flexibility even if it thinks economic growth will be more modest than predicted before," Javier Noriega, chief economist with investment bankers Hildebrandt and Ferrar, told Xinhua. "I don't think the economic prospects for the next 12 or 18 months have changed much in the last few weeks."

Francesco Daveri, head of the Full-Time MBA at SDA Bocconi School of Management and a former World Bank and European Commission consultant, agreed: "This far out, the difference between 0.4 percent and 0.6 percent is not significant," he said, referring to the commission's estimate and the Bank of Italy's estimate, respectively.

Last month, Minister of Economy and Finances Roberto Gualtieri said Italy would work to reduce its level of debt going forward but that it would do so "gradually."

Speaking in an interview with Xinhua, Daveri said the government has done what it can to help spark growth next year, most notably postponing the planned increase to the country's value-added sales tax that had been scheduled for a two-percentage-point increase on Jan. 1, 2020.

"Avoiding an increase" in the value-added sales tax "is a key move," Daveri said, noting that such an increase would have been a significant drag on economic growth next year.

But Daveri, Noriega, and other analysts agreed that economic reforms will be necessary before the country can hope to grow at a faster clip.

"The country is in serious need of major structural reforms while increasing spending on research and development, industrial production, debt reduction, and innovation," Noriega said. "But for now, I think Italy will be happy to restart growth next year and lay a groundwork for reforms after that." Enditem

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