Italy sees 2023 budget deficit overshoot at around 5.5% of GDP, sources say

Rome: Italy sees its 2023 budget deficit overshooting at around 5.5% of gross domestic product (GDP) from the current 4.5% target, sources said, pushed up by high interest rates and accounting adjustments regarding costly tax credits.

The 3.7% target currently established for next year’s fiscal gap is also set to be revised upwards, two sources close to the matter said. The sources asked not to be named due to the sensitivity of the issue.

Under current trends, next year’s deficit is still seen below 4% of GDP, they said, but Prime Minister Giorgia Meloni’s government may set a figure somewhat higher so as to preserve some scope to enact promised tax cuts in the 2024 budget.

Italy’s public finances are threatened by billion of euros in fiscal incentives for home improvements which are likely to be added to this year’s deficit, under criteria laid out by the European Union’s statistics agency Eurostat.

The impact of these incentives will become clear in the coming days, when Eurostat issues a ruling on how they must be factored into public accounts.

The Treasury was hoping revisions to Italy’s economic and public finance data published on Friday for 2020-2022 would have provided a positive carry-over effect on this year’s finances.

However, national statistics bureau ISTAT said any revisions to GDP data for the first and second quarter of this year are likely to be no more than marginal.

The outlook for 2024 is made particularly challenging after a slew of weak data that cast a shadow over Italy’s economic prospects.

The Treasury estimates Italy can still grow by 0.9% or 1% this year, broadly in line with the current target, but the 1.5% forecast in 2024 is likely to be revised down to 1.1 or 1.2%, the sources said.

Italy will unveil its new economic projections next week in the Treasury’s annual Economic and Financial Document (DEF).