Brussels, 18/04/2012 (Agence Europe) - The Italian government has postponed for a year, from 2013 to 2014, its aim of restoring a balanced budget, due to the recession biting deeper than initially forecast, explains a document from the Italian Treasury that was endorsed by the Italian cabinet on Wednesday 18 April.
The Italian report says that the government is aiming at a deficit of 1.7% of GDP this year and 0.5% next year (rather than the 1.6% and 0.1% forecast in December 2011) and then virtually a balanced budget (-0.1%) in 2014. The new target of 0.5% for 2013 is within the provisions of the fiscal compact, explained Italy's prime minister, Mario Monti. The Italian government says it has taken the decision due to the country's economy shrinking faster than expected, by 1.4% rather than 0.4% as forecast in December. Growth is respected to return in 2013 (0.5%). Italy's debt will rise by 3.3% in 2012 to 123.4% of GDP, falling back to 121.6% in 2013 and 118.3% in 2014.
These disappointing estimates are more optimistic than those published on Tuesday by the International Monetary Fund (see EUROPE 10596), which says that the Italian economy will contract by 1.9% in 2012, and the budget deficit will shrink to 2.4% in 2012, 1.5% in 2013 and a balanced budget will not be seen until 2017.
This means that the markets may be concerned about Italy's economy and the interest rates demanded for Italian bonds have been rising. If the situation were to deteriorate, the Monti government may need to introduce a new austerity programme despite its limited room for manœuvre when it comes to growth stimulus programmes. Fiscal pressure of 45.1% has been announced for this year. (FG/transl.fl)