Italy dismisses European Commission's deficit forecast

The European Commission late last week revised upwards its budget-deficit forecasts for Italy to 2.9% for 2019 and 3.1% for 2020 and projected lower growth for the moribund Italian economy and in line with the Eurozone’s broader slowdown.

The Italian growth forecast for 2018 and 2019 remains flat at 1,1%; down from the Commission’s original projections of 1.2%, which the Eurosceptic government in Rome dismissed as unrealistic and a “technical failure.”

Due to the combination of lower growth and higher deficit, the Commission expects the Italian debt-to-GDP ratio to remain stable at roughly 131% for the next two years (2018-2020).

Rome submitted a draft budget on October 16, which was rejected; the government is due to submit a new budget by Tuesday, November 13.

The new projections are a result of the 2019 draft budget that the Italian government submitted in October, including a guaranteed minimum wage and the rollback of a 2011 pension reform that increased the age of retirement.

The European Commission believes that measures being taken by Italy to boost domestic demand will have a far “lower impact on growth” than the Italian government anticipates and has continued to reiterate its warnings of the dangers stemming from surging bond yields for Italian lenders.

European Economic Affairs Commissioner Pierre Moscovici made clear that if the Italian budget that was submitted to but later rejected by the Commission in October is amended, Brussels will then revise its projections. The Commissioner also noted that data should not be ground for polemical exchanges, as these are “impartial” and Italy is not alone to see its own forecasts contested.

Italy’s Prime Minister Giuseppe Conte dismissed the Commission’s projections, saying the European officials in Brussels have underestimated the positive impact their budget plans will have on boosting domestic demand and improving structural reforms.

“We are going forward with our forecasts on public accounts, on growth that will rise and on the debt and deficit that will fall,” Conte told Italy’s public news agency ANSA, before adding that Italy will soon be able to contribute to the EU’s net growth.

Economy Minister Giovanni Tria also said that Italy’s 2.4% budget deficit target will remain unchanged and echoed Conte’s assertion that the European Commission’s forecast was a fundamental falsehood based on a partial and inattentive analysis.