MNI: Italy Business Groups See Risk Of Recession

Italy runs the risk of falling into technical recession in the third quarter, while the government’s 1.2% growth projection for 2024 is strongly dependent on an improbably efficient use of European Union funds, officials at Italy’s two top business lobbies Confindustria and Confcomercio told MNI.

Economic contraction for a second consecutive quarter in the July-to-September period would make government forecasts for 0.8% growth this year still harder to meet, noted an official at industry lobby Confindustria, asking not to be named.

And next year’s target could only prove accurate with a steep improvement in the use of funds from the NextGenerationEU programme, both the Confindustria source and Confcommercio’s head of studies Mariano Bella told MNI.

“That’s something we are not currently seeing with all these delays,” Bella said, adding that 0.8% growth would be more plausible.

ASSET SALES TARGET UNREALISTIC

The government’s assumption that it will be able to sell EUR20 billion in assets by 2026, which is key for its plans to keep a barely downward trend in the debt-to-GDP ratio, is also unrealistic, Bella added. (See MNI: Italy Makes EU Fiscal Rules Push As Deficit Nerves Grow)

Still, both lobbies considered the planned increase in spending which led to a revised forecast of a budget deficit this year of 5.3% of GDP, up from an original 4.5%, was an appropriate response to economic circumstances.

And there is room for optimism with regards to inflation, with the rate likely to fall below 2% in October, according to Bella, unless oil prices jump, which could push it up to 2.3%.

A further rise in oil prices, perhaps triggered by geopolitical instability, could pose a significant threat to the economy, largely because it could prompt the European Central Bank to further tighten monetary policy, the Confindustria official said.

The global rise in bond yields is less of a problem for Italy’s economy than higher oil prices and ECB rates, the officials said, adding that local corporates should be able to continue to access adequate liquidity so long as 10-year bonds yields remain below 5%. Corporate investment will continue at depressed levels either way, Bella said, noting that it was already poor when interest rates were low.