Italy’s Economic Outlook

By Giuseppe Fonte

ROME (Reuters) – Italy’s growth projections for this year and next have been lowered by the country’s budget watchdog, undermining prospects for the euro zone’s third largest economy.

The Parliamentary Budget Office (UPB) revised its Gross Domestic Product (GDP) estimates downward to 0.7% in 2024 and 0.8% this year, a decrease from its October forecasts of 0.8% and 1% respectively.

UPB projects a 0.9% growth for Italy’s economy in 2026.

In contrast, the Italian Treasury anticipates a 1% growth in 2024, 1.2% this year, and 1.1% in 2026. The National Statistics Institute (ISTAT) is set to release full-year 2024 GDP data on March 3.

This news poses a challenge for Prime Minister Giorgia Meloni’s government, as economic activity is faltering despite receiving substantial EU post-COVID-19 recovery funds.

Recent data revealed that Italy’s economy stagnated in the fourth quarter of last year, marking the second consecutive quarter of zero growth.

UPB attributes its downward revision primarily to higher gas prices and trade tensions. The import of around 95% of national gas consumption makes Italy susceptible to energy shocks.

The Italian household confidence recovery, noted during the first three quarters of 2024, has come to a standstill, influenced by a decline in general economic assessment expectations.

The grim forecast arrives as the Treasury prepares to update macroeconomic estimates in the upcoming April multi-year Document of Economy and Finance (DEF).

Reduced growth could strain tax revenues, heightening pressure on Italy’s public finances. However, the Treasury has dismissed calls for further budget consolidation despite commitments to EU authorities.

Rome has pledged to lower its budget deficit below the EU’s 3% of GDP limit by 2026, from the 3.8% target set for 2024.