Inflation darkens Italy’s economic outlook

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Italy continues to grapple with “excessive imbalances” on the macroeconomic front, the European Commission reports in its European Semester spring package.

“The Italian economy faces vulnerabilities related to high public debt and low productivity growth, as well as fragilities in the labor market and some weaknesses in the financial market,” the Commission said. European.

“Italy’s public debt ratio remains elevated, in part due to persistently weak GDP growth, and remains a risk to fiscal sustainability and the financial sector.”

In an article published in the FinancialTimes, Italy’s economic outlook worsens in the face of inflation (23 May 2022), Professor at London Business School Lucrezia Reichlin said: “If GDP is going to weaken significantly, the momentum is not pretty. The market has now become quite pessimistic and a possible recession in 2022 is something many people expect. »

Italy is on the way to fiscal consolidation. A budget deficit target of 5.6% is forecast for this year, down from 7.2% recorded last year. But economists warn that a sharp slowdown in growth would raise doubts about the deficit.

In a previous interview on CNBC’s Squawk Box programme, Professor Reichlin said rising borrowing costs were “worrying” for the country, partly because Italy is one of the most indebted countries in the euro zone, but also because of a feature of the euro area economy. “Whenever there are ‘bad shocks’, there is a flight to safety and the countries with the highest debts are the first to be penalized,” Reichlin said.

“We’ve seen this happen in previous crises and it’s something the European Central Bank (ECB) needs to correct as it relates to monetary policy transmission. We don’t want to have differential interest rates excessive in the euro area.

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