Draghi to Unveil Italian Budget Based on 6% Growth Surge in 2021

Draghi to Unveil Italian Budget Based on 6% Growth Surge in 2021

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Prime Minister Mario Draghi is set to unveil a budget that envisages economic growth of 6% this year, a better-than-expected rebound that allows the deficit and debt to fall more than previously forecast, according to a draft of the plan.

The fiscal shortfall for this year is seen at 9.4%, comfortably in single digits and well below the 11.8% target set in April, the document seen by Bloomberg shows. While officials reckon the deficit can drop to 2.1% by 2024, they are counting on breaching the European Union’s now-suspended ceiling of 3% for the foreseeable future. 

The budget, Draghi’s first since the former European Central Bank chief took office in February, chimes with the all-in approach that he has championed of keeping up fiscal support to revive economic growth. 

He and Finance Minister Daniele Franco will unveil it on Wednesday before sharing the plan with the European Commission. Parliament must approved it by the end of the year.

While Italy’s governments have spent over 170 billion euros ($198 billion) on stimulus since the outbreak of the pandemic, driving debt to almost 160% of output, the euro-zone’s third-biggest economy still shrank almost 9% last year. 

The country’s prospects are looking brighter now. Increasing rates of vaccination have allowed it to avoid renewed lockdowns, recovery aid from the European Union is supporting the economic recovery and ECB action in financial markets is keeping bond yields in check. 

The new gross domestic product forecast is up from the 4.5% government projection announced in April and is roughly in line with expectations of economists surveyed by Bloomberg. Debt this year is seen at 153.5% of output, below the April forecast of 160%.

After a record 8.9% contraction in 2020, driven by the impact of Covid-19 lockdowns, Italy is enjoying its strongest economic rebound since the 1970s as the world emerges from the coronavirus crisis. 

The budget forecasts healthy rates of growth in each of the next three years, reaching 1.9% in 2024. Debt is targeted to return to a pre-crisis level of 134.3% of output by 2030.

The country will be the biggest beneficiary of EU recovery funds, and Italy has already received the first tranche of the almost 200 billion euros it is set to get until 2026. The spending plan has been one of the central focus of Draghi’s administration, with a focus on infrastructure investments and energy transition.

The new budget forecasts do not yet incorporate the benefits of the recovery fund cash for the economy, according to the document.

©2021 Bloomberg L.P.

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