by Alessandra Cardone
ROME, Aug. 27 (Xinhua) -- Italy's government must correct its growth forecast downwards this year, economy minister Pier Carlo Padoan said in an interview on Wednesday.
Yet, Padoan added the sluggish growth was now a problem for the whole euro zone and, as such, it would require European Union (EU) countries to coordinate better their strategies in order to stimulate recovery and avoid the risks of a very low inflation.
"We must cut our gross domestic product (GDP) growth forecasts," Padoan told Corriere della Sera newspaper in an interview.
After a timid recovery in the last three months of 2013, Italy's output fell by 0.1 and by 0.2 percent in the first and second quarter of 2014, respectively. This dragged the country back into recession for the third time since 2008. Its GDP had already fallen by an overall 1.9 percent in 2013 and by 2.4 in 2012.
Since Prime Minister Matteo Renzi's cabinet in April had predicted a 0.8 percent growth for this year, a review of the official forecasts was highly anticipated after latest figures.
"A revision at this point is normal and it was very predictable, since the government's latest forecast had been made a few months ago, when we all were still expecting a more substantial growth," Stefania Tomasini, head of economic analysis and forecasting with Prometeia think tank, told Xinhua in an interview.
Most analyses now foresee an almost-zero growth for Italy this year, and Tomasini agreed with the perspective, saying any forecast higher than a 0.2-0.3 percent would be most unlikely at this point.
Padoan, a former executive director with the International Monetary Fund (IMF), confirmed once more Italy's budget deficit would in any case remain below the EU limit of 3 percent of the GDP. He also stressed the relevance of the spending review, along with structural reforms, in order to put the third euro zone largest economy back on track.
"The spending review will be the driving tool in formulating our budget law," Padoan said.
As Italy's government has just resumed its activity after the summer break, Padoan said all cabinet's ministers will be asked to locate possible cuts, and no public sector will be kept out. The spending review, however, will preserve the effectiveness of public services.
In the extensive interview with the Milan-based newspaper, Padoan broadened his analysis to the European economic situation, pointing out the current risks of deflation. According to the Italian economy minister, Europe is now "at a crossroad."
"Either will the EU slide into deflation and slow growth or it will perform a last-gasp effort and restart with 'growth friendly' structural reforms and budgetary consolidation policies," Padoan declared.
The crisis engulfing Italy's economy has widen to the euro zone during the summer, German and French economies included, Padoan warned. "The situation is worse than expected, and nobody is happy with it. Yet, it draws attention to the fact that a joint European action is needed," he said.
Padoan added he was in "full agreement" with the European Central Bank (ECB) president, Mario Draghi, who recently urged euro zone governments to do more to revive growth and suggested "growth-friendly" fiscal policies could play a greater role in promoting recovery.
Along the same lines, Padoan asked for a greater harmonisation among EU partners. "We should have a 'European vision' of reform strategies, by creating space for a greater coordination of our policies," Padoan said.
According to Prometeia expert, this idea has long been discussed but never put into place.
"A greater coordination of structural reforms and growth strategies, via investments to be managed at the European level, would be highly desirable, and I believe this is what minister Padoan meant," Tomasini said.
EU countries have so far acted quite separately, but for the EU limits on budgets or debts, she explained. "Yet, this unexpected prolonged lack of growth might now push them along the path of greater coordination. It is difficult to predict, but it would be certainly desirable."