Italy’s economy will contract this year more than the government forecasts as falling domestic demand and investments extend the country’s fourth recession since 2001, the national statistics institute said.
Gross domestic product will decline 1.5 percent in 2012 before rising 0.5 percent in 2013, Istat Chairman Enrico Giovannini said in Rome today, according to the text of a speech to present the institute’s annual report. Household consumption and corporate investment will both decline this year, 2.1 and 5.7 percent respectively.
Istat’s GDP projections compare with forecasts by Prime Minister Mario Monti’s government for a 1.2 contraction this year and 0.5 percent growth in 2013. The Organization for Economic Cooperation and Development said today that Italy’s economy will shrink 1.7 percent this year and expand 0.5 percent next year. Istat said the unemployment rate, currently at a 12- year high of 9.8 percent, won’t start falling until 2014.
This year “will be remembered as a very difficult year, both on the economic and social level,” Giovannini said. Last year, Italy was forced “to acknowledge fully and in a traumatic way the seriousness of the situation, as we realized that we’re more vulnerable than imagined and began to deal with many unresolved issues.”
Monti, who took office on Nov. 16, has pushed through 20 billion euros ($25.5 billion) in austerity measures and efforts to streamline bureaucracy and deregulate services. Still, Italian GDP fell 0.8 percent in the three months through March, the third quarterly decline and the steepest drop since 2009.
The Paris-based OECD warned today that Monti’s efforts to overhaul the economy and shore up public finances may be undermined by contagion from the euro region’s debt crisis that threatens to drive up borrowing costs.
“The OECD expects a more prolonged recession,” said Nicholas Spiro, managing director of Spiro Sovereign Strategy in London. “And this is what they anticipate provided the euro- zone crisis does not escalate further.”
Italy’s goal of virtually eliminating the deficit next year and balancing the budget in 2014 is achievable, though “some additional fiscal action may be needed, given the projected recession but prudent government assumptions about revenues from anti-tax-evasion measures provide a safety margin,” the OECD said.
Monti said today that Italy won’t need any further budget adjustments. “We are en route to having a light, structural budget surplus in 2013 thanks to the measures we have already taken,” he told reporters in Rome as his government unveiled plans to offer as much as 30 billion euros in back payments owed by the state to Italian companies for their goods and services.
Consumer group Codacons urged Monti’s government to enact measures to support families and consumption as it’s “the only way for the economy to expand, at least in 2013,” according to an e-mailed statement today. “Otherwise, as today’s forecast by the OECD shows, Italy won’t meet its balanced-budget target.”
Italy’s outlook is “tilted to the downside” as the third- biggest economy of the 17-member euro region faces rising debt- financing costs and a credit crunch amid an escalating sovereign crisis, the International Monetary Fund said last week in a review of the country’s public finances.
“Renewed financial turmoil could push government bond yields higher, tighten bank credit and weaken activity,” the Washington-based lender said, confirming an earlier forecast for a 1.9 percent contraction this year.
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