Italy may have staved off recession, says economy minister

Giuseppe Fonte

Rome: Italy seems to have avoided an economic recession despite being hit by costly energy prices and record high inflation, Economy Minister Giancarlo Giorgetti said, offering a less grim outlook for the right-wing government.

However, he did warn that European Central Bank rate rises would pose “serious problems” for high-debt countries such as Italy.

An economic recession is widely defined as two consecutive quarters of declining GDP and the euro zone’s third largest economy shrank 0.1% in the fourth quarter of 2022 from the previous three months.

Last November the Treasury forecast two straight quarters of GDP contraction until March. But now it has revised its outlook and expects growth in the first three months of this year, a government official told Reuters.

The more upbeat picture was reflected in remarks by Giorgetti in a speech at a Milan university.

“The government’s action has focused on minimising the risk of recession. From the latest available data, it seems to have been averted, so let’s keep our fingers crossed,” Giorgetti told the Università Cattolica del Sacro Cuore.

Prime Minister Giorgia Meloni’s administration is due to unveil its new growth estimates and public finance targets next month.

Annual growth is now expected at almost 1%, up from the 0.6% target set in November, a Treasury official has previously said.

The new estimates “will be an opportunity to assess the economic situation, define the objectives for the medium term and identify the most appropriate actions to be taken to continue to support families and businesses,” Giorgetti said.

Italy’s 2023 budget has earmarked over 21 billion euros ($22.4 billion) to help firms and households pay electricity and gas bills in the first quarter of this year.

Rome is working to review and extend those relief measures, officials have previously said.

With the European Central Bank (ECB) raising interest rates, Giorgetti said Italy should keep following a “cautious and responsible” fiscal policy in order to lower its public debt.

ECB monetary policy aimed at fighting inflation “is leading to interest rate hikes unknown in a world that was accustomed to living at zero or negative interest rates,” Giorgetti said, adding that this “would pose serious problems for highly indebted countries such as Italy.”

Italy’s public debt – proportionally the highest in the euro zone after Greece’s – fell to 144.7% of GDP in 2022 against a government target of 145.7%, ISTAT said last week.