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News Analysis: Economic growth predictions for Italy lowered as recovery hopes dented

English.news.cn   2014-07-27 23:05:50

by Eric J. Lyman

ROME, July 27 (Xinhua) -- Hopes for momentum for Italy's slow-moving economic recovery took a blow this week, when the International Monetary Fund lowered its growth estimates for the country's economy, just days after the Bank of Italy made a similar move.

The country is still likely to show positive growth for 2014 as a whole -- if that proves to be the case it will be the first time in three years and just the third time in seven years the country's economy grew -- but the earliest prognostications were for it to grow 0.7 to 0.8 percent for the year.

The IMF's new estimate for all of 2014 is just 0.3 percent; the Bank of Italy predicts 0.2 percent growth. Both also lowered growth forecasts for next year.

For its part, ISTAT, Italy's National Statistics Institute maintains a 0.7 gross domestic product growth target for the year, though speculation in the Italian press is that ISTAT will soon lower its prediction as well.

Slower economic growth makes it more difficult for Italy to pay down debt and close the budget deficit. It comes at a time when Italian Prime Minister Matteo Renzi is using Italy's six-month term with the rotating presidency of the European Union to push for more flexibility on the austerity rules for the 28-nation bloc.

Experts said the development could have a ripple effect -- it's just not clear what it will be.

"There's a possibility that this could convince some of the countries against loosening the austerity policies that it is counter-productive to make them the top priority," Javier Noriega, chief economist with investment bankers Hildebrandt and Ferrar, said in an interview.

Giuseppe Di Taranto, an economist and historian with LUISS University in Rome, agreed.

"Of around 200 countries in the world, only 18 of them meet the EU's two stability targets," he said, referring to the caps of a budget deficit of less than 3 percent of the country's gross domestic product and total debt of less than 60 percent of GDP. "It's apparent that it isn't a useful mechanism."

But Di Taranto, in an interview with Xinhua, also warned the lower growth predictions could also lead to still slower growth.

"Something like this could also worry foreign investors," he said. "They could start to think Italy's forecasts could be unreliable, or could be drawn to another market with better growth prospects. If that happens, lower foreign investment could lead to still lower growth."

As Italy struggles to emerge from its deepest economic slow down since the end of World War II, the Renzi government has made sparking new growth a priority.

The government has already handed low- and middle-income workers an 80-euro monthly tax break, and it is working to streamline tax rules, cut back on public spending by reducing bureaucracy and trimming the bloated public sector, and crafting economic incentives aimed at convincing companies to take on new workers.

So far, the steps have had a limited impact -- especially in the light of the lower growth targets from the IMF and the Bank of Italy.

Editor: Mu Xuequan
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