Italy sticks with 1% 2023 growth target despite weak second quarter

Cernobbio: Itay can still achieve economic growth of 1% this year despite the fall in output reported in the second quarter, Economy Minister Giancarlo Giorgetti said on Sunday.

Italy’s gross domestic product (GDP) shrank by 0.4% in the second quarter from the first and its manufacturing sector contracted in August for a fifth consecutive month, according to data released on Friday. GDP grew 0.6% quarter-on-quarter in the first three months of this year.

“The government plans to maintain the forecasts of 1% in 2023, but inevitable external variables are radically changing the picture,” Giorgetti said, speaking at The European House-Ambrosetti economic forum.

With interest rate hikes by the European Central Bank to curb inflation dampening economic activity, Rome’s growth target of 1.5% next year is increasingly at risk, economists say.

The government will update its growth estimates and public finance targets by Sept. 27.

Giorgetti also renewed calls for new European Union budget rules to include favourable treatment for some spending, such as investments aimed at making the economy greener and financial aid to Ukraine.

Italy is preparing a difficult 2024 budget in which it will seek to reaffirm Prime Minister Giorgia Meloni’s commitment to keeping its deficit on a downward trend, leaving little leeway for stimulus.

The government in April set a budget deficit target of 4.5% of national output this year and 3.7% of GDP in 2024.

“Next year’s budget law will obey the purpose of limiting positions of advantage we can no longer afford and reward those who work and create real wealth, especially looking ahead to the main source of wealth production: children,” Giorgetti said, indicating there might be tax breaks to help families.

A key factor weighing on Italy’s state coffers is a contested energy scheme approved under Meloni’s predecessor Giuseppe Conte in 2020.

The total cost of the so-called Superbonus, offering incentives for energy saving home improvements, is now approaching 100 billion euros ($107.73 billion).

“Thinking about the Superbonus makes me sick to my stomach, it has a negative effect on public accounts, it engulfs economic policy and leaves no room for other interventions,” Giorgetti said.