Italy's budget watchdog cuts growth estimates as problems mount

Reuters

05-02-2025

ROME, Feb 5 (Reuters) - Italy's growth this year and next will be weaker than the government's official targets, the country's budget watchdog said on Wednesday, casting a shadow over prospects for the euro zone's third largest economy.
The Parliamentary Budget Office (UPB) cut its gross domestic product (GDP) estimates to 0.7% in 2024 and 0.8% this year, down from projections made in October of 0.8% and 1% respectively.
The Italian economy is expected to grow by 0.9% in 2026, it said.
Italy's Treasury sees gross domestic product growing by 1% in 2024, 1.2% this year and 1.1% in 2026.
National statistics institute ISTAT will issue full-year 2024 GDP data on March 3.
In a blow to Prime Minister Giorgia Meloni's government, economic activity is losing traction despite the arrival in Rome's coffers of regular installments of billions of euros in post-COVID 19 recovery funds from the European Union.
Italy's economy stagnated in the fourth quarter of last year from the previous three months, preliminary data showed last week, marking the second straight quarter of zero growth.
UPB said its downward revision was mainly due to "higher gas prices and trade tensions."
U.S. President Donald Trump has announced sweeping tariffs on goods from Mexico, Canada and China - the United States' three biggest trade partners - and has also said tariffs with the European Union would "definitely happen."
Italy's problems are compounded by its vulnerability to risks of an energy shock, as the country imports around 95% of the gas it consumes per year.
"The recovery in Italian household confidence, which had characterised the first three quarters of 2024, came to a halt towards the end of last year. This reflects the deterioration in assessments of the general economic situation, with expectations being downgraded," UPB said.
The worsening outlook comes as the Treasury is preparing to review a raft of macroeconomic estimates in April in its multi-year Document of Economy and Finance (DEF).
Although lower growth reduces tax revenues, putting pressure on Italy's strained public finances, the Treasury has so far denied the need for further budget consolidation to reach commitments agreed with European Union authorities.
Rome has pledged to bring its budget deficit below the European Union's 3% of GDP ceiling in 2026 from 3.8% targeted in 2024.