Italy’s economy could grow above 5.8% in 2021

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By Francesca Landini and Giuseppe Fonte

CERNOBBIO, Italy (Reuters) – Italy’s economy could grow this year by more than 5.8% and post better than estimated deficit and debt ratios, Economy Minister Daniele Franco said on Sunday.

Speaking at an annual business conference in Cernobbio on Lake Como, Franco added that Rome was committed to turning the post-pandemic rebound into higher structural growth.

In its latest forecast in April, Italy’s Treasury had estimated 4.5% growth this year and 4.8% in 2022. The euro zone’s third largest economy shrank by a post-war record of 8.9% in 2020.

Since April, the outlook has gradually improved and Italy’s parliamentary budget watchdog (UPB) said last month it expected the country’s economy to grow by 5.8% in 2021.

“A strong recovery is underway and we cannot exclude that the GDP growth will be stronger than estimated by UPB,” Franco said. “It is important that the recovery is quick, but the most important challenge is achieving a structural stronger growth.”

The new government forecasts, along with updated public finance targets, will be contained in the Treasury’s Economic and Financial Document (DEF) expected by Sept. 27.

The DEF forms the preliminary framework for the 2022 budget, which Franco said on Sunday would remain expansionary in order to help recovery from the pandemic.

Italy’s deficit-to-GDP and debt-to-GDP ratios are set to be better than forecast at the end of this year, he added.

Rome targeted in April a fiscal gap of 11.8% of GDP this year and said its debt-to-GDP ratio would climb to 159.8%, the highest in Italy’s post-war history.

“The public debt is sustainable … the average cost of debt was around 2.4% last year and is expected to fall further,” he said.

To help boost Italy’s traditional anaemic growth, the government plans to cut both income tax and the tax wedge in a planned fiscal reform which could win cabinet approval this month.

“A common effort of the whole country is needed” to boost long-term growth, the minister said.

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