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Italian central bank expects weak recovery

January 18, 2011

By Guy Dinmore in Rome, published: January 18 2011

Italy’s economic recovery will remain weak and below the eurozone average over the next two years, the Bank of Italy forecasts in a report that diverges from more upbeat government predictions while underlining the need for structural reforms.

Noting a slowdown in gross domestic product growth in the last quarter of 2010, the central bank predicted on Tuesday that Italian GDP would grow at a similar pace of 0.9 per cent in 2011 and 1.1 per cent in 2012, boosted by rising exports but held back by weak consumer spending and the government’s austerity programme. Modest growth would not be enough to produce a robust recovery in employment, the bank said.

Last month the Bank of Italy noted that private analysts and international organisations had forecast economic growth for Italy of 1.2 per cent in 2012.

The Bank of Italy’s economic forecasts, reinforced by sombre assessments from its governor, Mario Draghi, frequently clash with the more sanguine outlook of Giulio Tremonti’s finance ministry which has forecast 1.3 per cent GDP growth this year and a rise of 2 per cent in 2012.

The bank pointed out that by its estimates, Italy’s GDP by the end of 2012 will have recovered only half the losses of the recent recession, amounting to a net contraction of 7.0 per cent over 2008 and 2009. Stressing that Italy lags behind the eurozone average, it said industrial production in November 2010 was still 18 percentage points below levels reached in spring 2008, while France and Germany were 10 and seven points down respectively.

The bank warned that its forecasts were subject to high levels of uncertainty because of the sovereign debt crisis “in some eurozone countries”. However it noted that the government had met its target of reducing Italy’s budget deficit to 5 per cent of GDP at end-2010 from 5.3 per cent in 2009. The budget deficit is targeted to fall to 3.9 per cent in 2011 and to move from a primary deficit of 0.3 per cent to a surplus of 0.8 per cent.

Italy’s sovereign debt reached €1,842bn at end-2010, equivalent to 118.5 per cent of GDP, up from 116 per cent in 2009. The government forecasts debt levels to reach 119.2 per cent this year.

“It is essential that Italy removes the structural obstacles that have so far prevented its economy from taking part fully in the recovery of the world economy,” the Bank of Italy concluded.

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