Italy’s Populist Cabinet Slashes 2019 Economic Growth Forecast Fivefold

Italy’s Populist Cabinet Slashes 2019 Economic Growth Forecast Fivefold

The Italian government is still going ahead with two controversial social programs, including the introduction of a basic income for all Italian citizens.

Italy’s GDP will grow only by 0.2% in 2019, according to the new projection of the country’s populist Cabinet, which has cut fivefold its previous estimate.

Back in December 2018, the Italian government, a coalition of the leftist populist Five Stars Movement and the far-right League party, had set its 2019 growth projection at 1%.

Italy, the Eurozone’s third largest economy, has the Eurozone’s second highest public debt proportionally, after Greece, and has seen the slowest growth all euro area members since the euro was launched 20 years ago.

The leftist – rightist populist coalition came to power in June 2018 with lavish social promises, and is now trying to revive growth after the Italian economy fell into a recession at the end of last year.

Economic growth in Italy will rise in the second half of 2019 by a stimulus package that includes tax breaks on investments, lower property taxes on factories and warehouses, and simplified procedures for public tenders, the Italian government said, as cited by Reuters.

It added that without the stimulus package, which is still being finalized and is referred to as a “growth decree”, Italy’s GDP would have risen by 0.1%.

The European Commission, the EU executive, also has a 0.2% 2019 economic growth project for Italy.

On Tuesday, the International Monetary Fund set its Italian 2019 growth forecast to 0.1%, the Organization for Economic Cooperation and Development, on the other hand, projects a decline of 0.2%.

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

The Italian government has also updated its debt-to-GDP target shifting it upwards to 132.6%, a new post-war high, from 130.7% set in December 2018.

The debt-to-GDP ratio Italy registered in 2018 was 132.2%, amounting to some EUR 2.3 trillion (USD 2.6 trillion) in absolute terms.

The new GDP growth projections of the populist Cabinet in Rome also revised the 2020 forecast to 0.8%, down from 1.1%.

Italy’s Finance Ministry has also raised its 2019 budget deficit target to 2.4% of the GDP, up from 2.04% set in December after a bitter argument with the European Commission, the EU executive.

The ministry said, however, that Italy’s 2019 “structural deficit”, i.e. adjusted for GDP growth fluctuations, would amount to 1.5% of the GDP, thus technically complying with commitments made to the Commission.

The 2020 budget deficit target was also upped, to 2.1% compared with 1.8% projected in December. Public debt in 2021 is projected at 131.3%.

“We will push on, getting the country going again, stimulating growth and helping families that really need it, without trumpeting false promises as has been done in the past,” said Five Stars Movement head Luigi Di Maio, who is also Italy’s Prime Minister in charge of the economy, in a statement on the adoption of the Finance Ministry’s Economic and Financial Document (DEF), the basis for the 2020 state budget.

Italy’s populist Cabinet is going ahead with two controversial programs: introducing a citizens’ basic income, and a quota 100 early retirement scheme.

(Banner image: Five Stars Movement blog)

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