Italy has slashed its growth forecasts for this year and next, nine weeks before a referendum shaping up as make-or-break vote on the centre-left government’s record that could send shockwaves across Europe.
Speaking late on Tuesday after a cabinet meeting on updated budget plans for 2017, Prime Minister Matteo Renzi said he was now making a “prudent” prediction of growth of 0.8% for this year and 1% for 2017. That compares with figures of 1.2% and 1.4% forecast by the government in April.
The downward revisions follow a gloomy summer in which it became clear that an economy that had been growing slowly ground to a virtual standstill in the first half of this year.
The latest economic data, published yesterday, offered mixed signals with consumer confidence falling in September compared with the previous month, while companies were marginally more optimistic about the future, according to the national statistics body Istat.
Independent economists say Italy will struggle to hit even the revised targets given weak domestic demand, the crisis facing the country’s debt-laden banks and the fallout from Britain’s “Brexit” vote to leave the EU.
Italy’s economy has barely grown since the country became a founding member of the eurozone in 1999.
That stagnation has hammered the purchasing power of working and middle class voters.
As salaries have trodden water, the cost of a pizza in Rome has trebled. The rise of energy prices has been sharper, hitting pensioners on fixed incomes particularly hard.
That is the backdrop against which fed-up Italians will vote on December 4 on a package of constitutional reforms designed to make the country easier to govern.
Renzi has gambled his personal future on the outcome of a vote on abolishing the second-chamber Senate and revising the electoral system to ensure election winners of workable parliamentary majorities.
The bullish premier’s stance has hugely raised the stakes involved in the vote because of the realistic possibility that fresh elections will bring the populist Five Star Movement to power on a mandate to organise a Brexit-style referendum on Italy’s future within the euro single currency zone.
The 41-year-old premier has admitted he made a mistake in making it all about him.
Polls suggest the referendum outcome is too close to call.
But even if Renzi carries it, Five Star could still triumph in elections in 2018 with the help of a new winner-takes-all electoral system.
Among the sceptics about Italy’s new growth predictions are economists at the OECD club of industrialised countries. They are predicting 0.8% growth for both this year and next.
Renzi said Italy’s budget deficit would fall to 2.4% of GDP this year, from 2.6% in 2015, and a maximum of 2.0% next year.
The latter figure is slightly above the 1.8% target Italy has been set by the European Commission, which is urging Rome to cut year-on-year spending faster to reduce a debt mountain equivalent to more than 132 % of the entire economy.
Renzi said Italy would be seeking leeway on the interpretation of EU budget rules — equivalent to a maximum 0.4 % of GDP — to cover the exceptional costs of the ongoing migration crisis and rebuilding after a deadly earthquake in August.
Overall, Renzi’s budget plans are less confrontational vis-a-vis Brussels than the more expansionary plans trailed in the Italian media last month.
But he could not resist another swipe at the EU’s Stability Pact rules, saying he was bored of talking about them.
“There are rules, that I don’t agree with but respect,” he told the RTL 102.5 radio station yesterday. “They (the government’s spending plans) observe the rules, which Italy always does but other countries don’t.”
Renzi ... staking his political future
