MNI INTERVIEW: APP End OK For Italy Eco If Tgts Hit: BOI Rossi

--Italy Growth, Fiscal Targets Strictly Linked: BOI Dep Gov Rossi

--All Italy Govt Policies Need To Address Budget Constraints

By Silvia Marchetti

     ROME (MNI) - Italy's economy is in a fit state to weather the end of the

European Central Bank's asset purchase program provided that both growth and

fiscal targets are met, Bank of Italy Deputy Governor Salvatore Rossi told MNI

in an interview.

     "Under the assumption that the expected growth rates will be confirmed and

that fiscal policy remains prudent and credible, the Italian economy now has the

capacity of sustaining a progressive normalization of monetary policy," Rossi

said.

     According to latest BOI projections, GDP is set to grow 1.3% this year and

1.1% in 2019-20,  a slightly slower pace than seen in earlier January forecasts.

     Rossi also attempted to downplay concerns over the impact on household

balance sheets when the European Central Bank's Asset Purchase Programme comes

to an end, now likely at the end of this year.

     He noted that according to the bank's estimates, when APP terminates, if

financing costs of Italy's private sector increase by an additional 100 basis

points with respect to the current macroeconomic projections -- which already

assume a gradual increase -- the debt levels of households and firms would reach

12 and 28 percent respectively, values much lower than those seen during the

sovereign debt crisis of 2011.

     "Household consumption should be supported by the continuing improvement of

the labour market and low interest rates. The outlook for firms' investment will

benefit from rising demand perspectives, favourable financing conditions and

government incentives," Rossi said.

     Italy's recovery however is expected to continue in the near future

provided that favourable monetary and financial conditions, alongside further

improvements in global demand, prevail.

     --DOWNSIDE RISKS

     A number of downside risks exist, warned Rossi, both domestic and global.

"Those related to Italy's political scenario emerged recently," he noted, "while

other risks stem from economic and trade policies at the international level".

     In order to boost Italy's economic resilience, pursuing reforms is

therefore paramount, as productivity and employment should top the policy agenda

going forward. However, he stressed it must be in an ordered way.

     "Several structural reforms have been promoted in the last years, with some

success. It is essential now to proceed using a comprehensive approach, whereby

each measure is designed as part of a broader strategy in which goals,

implications and expected benefits are clarified at the outset," Rossi said.

     --CURBING DEBT

     Curbing public debt remains key to growth consolidation, particularly since

its weakness is a structural issue that clearly emerged before the crisis

outbreak.

     Despite noting that public finances are in a better shape than in the past

thanks to a series of reforms which structurally reduced the dynamics of current

expenditure, Rossi acknowledged that more needs to be done to reassure

investors, boost debt sustainability and by extension stability. In 2017 Italy's

net borrowing went down from 2.5 to 2.3% of GDP, and in May, the European

Commission forecast a further 0.6% decrease for 2018.

     "Reducing public debt is still a priority, and not only because it's a

European constraint, but first and foremost because high public debt is a source

of financial vulnerability and constitutes a drag on growth, absorbing resources

that could otherwise be used for other policies," the deputy governor said. 

     Every policy aiming at supporting growth must therefore take into full

account budgetary constraints," he added.

     Rossi pointed out how thanks to several reforms which have been enacted

since the early 1990s, the Italian pension system now stands out as one of the

most financially sound.

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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