The current global and macroeconomic outlook does not bode well for Prime Minister Giorgia Meloni, who campaigned last year on a promise to “lift up” the Italian economy. To make good, her government will need not only to unlock additional EU recovery funds but also to put them to the best possible use.
MILAN – Despite challenging global conditions, Italy’s economy has been faring relatively well. After slowing in the last quarter of 2022, GDP growth picked up in the first quarter of this year to reach an annualized rate of 1.9%. Yet even if growth were to accelerate slightly, we still are unlikely to see a repeat of last year’s overall performance, when the economy expanded by 3.7% – one of the highest growth rates of the last 40 years.
Last year’s growth was largely the result of robust domestic demand, especially private consumption and investment in residential properties, which benefited from tax credits that were introduced before the pandemic to make Italy’s aging residential stock more energy efficient. At the same time, fiscal measures helped households and businesses preserve their purchasing power in the face of higher food and energy prices following Russia’s invasion of Ukraine.
But expansionary fiscal policy widened the budget deficit to a whopping 8% of GDP, even as strong growth brought the government’s debt-to-GDP ratio down to 144% – an 11-point drop from its 2020 peak. Now that many of the fiscal measures have been phased out, the projected deficit has fallen to 4.5% of GDP.
MILAN – Despite challenging global conditions, Italy’s economy has been faring relatively well. After slowing in the last quarter of 2022, GDP growth picked up in the first quarter of this year to reach an annualized rate of 1.9%. Yet even if growth were to accelerate slightly, we still are unlikely to see a repeat of last year’s overall performance, when the economy expanded by 3.7% – one of the highest growth rates of the last 40 years.
Last year’s growth was largely the result of robust domestic demand, especially private consumption and investment in residential properties, which benefited from tax credits that were introduced before the pandemic to make Italy’s aging residential stock more energy efficient. At the same time, fiscal measures helped households and businesses preserve their purchasing power in the face of higher food and energy prices following Russia’s invasion of Ukraine.
But expansionary fiscal policy widened the budget deficit to a whopping 8% of GDP, even as strong growth brought the government’s debt-to-GDP ratio down to 144% – an 11-point drop from its 2020 peak. Now that many of the fiscal measures have been phased out, the projected deficit has fallen to 4.5% of GDP.