By Giuseppe Fonte
ROME (Reuters) – Italy is set to raise its growth forecast for 2023 but cut next year’s projection as the medium term outlook darkens, government officials said, while confirming previous public finance targets to keep the budget deficit on a downwards trend.
In its Economic and Financial Document (DEF) to be unveiled on Tuesday, the Treasury forecasts gross domestic product (GDP) to grow by 1% this year, up from a 0.6% projection last November, two officials familiar with the matter said.
The growth rate would be 0.9% under an unchanged policy scenario. The final target is slightly higher as Rome aims to unveil in the DEF a new set of measures that are expected to support economic activities in the coming months.
However, the negative impact of rising interest rates set by the European Central Bank to curb inflation is deteriorating the prospects for 2024.
The government now sees GDP rising by 1.4% next year, down from the previous target of 1.9%.
Economy Minister Giancarlo Giorgetti has said higher interest rates could pose a threat to growth, in an implicit criticism of European Central Bank (ECB) policy.
Another key issue affecting the estimates is Italy’s ability to catch up with the European Union’s post-COVID recovery funding programme.
Italy is due to receive roughly 200 billion euros ($217.92 billion) in grants and cheap loans through 2026, but the government is falling behind both on targets and milestones agreed with Brussels in return for the aid, and on spending money already received.
On the public finance front, Rome intends to confirm its 2023 budget deficit target at 4.5% of national output, the officials said, helped by the fact the deficit is on course for a slightly lower 4.35% under current trends.
That allows potential leeway worth up to 3 billion euros of additional spending or tax cuts.
Last year, Italy reported a budget gap of 8% of GDP, but Rome is gradually phasing out the strongly expansionary policy adopted since 2020 to soften the impact of the pandemic and an energy crisis exacerbated by Russian invasion of Ukraine.
The government is expected to keep its 3.7% deficit goal for 2024, one of the officials said.
Italy’s public debt, proportionally the highest in the euro zone after Greece, is targeted to gradually decline over the years to 140.9% of GDP in 2025 from 144.4% in 2022.
($1 = 0.9178 euros)
(Editing by Chris Reese and Jamie Freed)
