IMF sees Italy GDP up 4.3% in 2021, budget deficit at 11.8% GDP

FILE PHOTO: Outbreak of the coronavirus disease (COVID-19) in Milan
FILE PHOTO: People wearing face masks walk in Duomo square as the region of Lombardy becomes a 'red zone', going into lockdown as the country struggles to reduce the coronavirus disease (COVID-19) infections, in Milan, Italy, March 15, 2021. REUTERS/Flavio Lo Scalzo

June 3, 2021

MILAN (Reuters) -The International Monetary Fund delivered slightly improved growth forecasts on Thursday for Italy’s economy in 2021 and 2022 as it gradually recovers from the coronavirus crisis with support from increased fiscal spending.

The IMF now sees Italy’s gross domestic product up 4.3% and 4% in 2021 and 2022 respectively, revised up from an April estimate of 4.2% and 3.6%, and closer to the government’s projections of growth of 4.5% this year and 4.8% next year.

“A robust recovery is expected in 2021 supported by ongoing vaccinations although large uncertainty remains,” the Fund said in statement released at the end of its annual visit to Italy.

“Continued policy support will be necessary until the recovery takes hold”, IMF added.

Italy’s economy grew by 0.1% in the first quarter this year from the previous three months due to higher investments and inventories, national statistics bureau ISTAT said on Tuesday, sharply raising a preliminary estimate for a 0.4% contraction.

The unusually strong revisions, which took the country out of recession, increase the possibility of meeting the government’s full year growth forecast of 4.5%, following a 8.9% contraction last year when the economy was hobbled by coronavirus lockdowns.

The Fund said Italy’s budget deficit for 2021 was now seen at 11.8% of GDP, up from 8.8% projected in April, and in line with a government’s estimate for a double-digit deficit, which was last experienced in the early 1990s.

As the coronavirus crisis pushes up government spending, the Fund also revised up the fiscal gap for 2022 to 6% from 5.5% of GDP, near Rome’s projection of 5.9%.

Debt levels in Italy, proportionally the highest in the euro zone after those of Greece, were forecast at 159.9% of GDP for this year, broadly in line with a 159.8% government estimate, the highest level in Italy’s post-war history. For 2022 the IMF expects public debt to stand at 157.9% of GDP, above Italy’s estimate of 156.3%.

(Reporting by Maria Pia Quaglia, Editing by Alison Williams & Simon Cameron-Moore)