Q1 Seasonality Skews Italian Fiscal Deficit Higher (1/2)

The Italian Q1 fiscal data looks worse than it probably is, though broader concerns around debt sustainability have not been alleviated.

• Although the general government cumulative deficit/GDP ratio rose to 8.8% (vs 7.4% prior), deficits are usually highest in Q1 before falling through the remainder of the year.
• Since 2000, Government revenues have fallen by an average 35% Q/Q in Q1, driven by a 50% fall in income taxes (which are then recouped in Q2 and Q4 as individuals file tax returns).
• Measured as a 4Q rolling sum, the deficit/GDP ratio actually fell to 6.7%, after Q1 2023’s 11.6% deficit dropped out of the calculation.
• An improvement in the budget deficit is expected in 2024 (e.g. Italian Treasury forecasts 4.3%, the EC 4.4%, and the current Bloomberg median 4.7%).
• The fall in the 4Q rolling measure suggests progress is being made here, but there is still some way to go.
• The primary balance showed similar dynamics to the wider deficit. The cumulative deficit to GDP was 5.3% in Q1 (vs 3.6% prior), but 2.9% on a 4Q rolling sum basis.