Italy's Slowing Economy Adds Pressure on Populists Over Budget

(Bloomberg) -- Italy's populist government is facing renewed criticism of its economic policies after new signs of a slowdown fueled speculation that additional measures would be needed to spur growth and contain the deficit.

“If the data show a slowdown, as we're seeing in our businesses and as said by the Bank of Italy, it's obvious that we need to act,” Vincenzo Boccia, head of Italy's Confindustria business lobby said in an interview in La Stampa on Sunday. He added that the government needs to acknowledge that its budget would likely increase the deficit instead of promoting growth.

Italy has been struggling to break out of years of relative economic stagnation, but the European Commission projects the country will have the slowest growth in the 19-nation euro area this year and next. On Friday, the Bank of Italy cut its growth forecast for 2019 and 2020 and signaled that the region's third-biggest economy might have already slipped into a new recession at the end of last year.

The populist government criticized the central bank, defended its budget, and said its plans to lower the pension age and boost welfare spending for the poor will promote growth. Deputy Premier Luigi Di Maio said the Bank of Italy “is often wrong” and questioned the timing of its report saying it's biased against the populist coalition.

The Bank of Italy's quarterly economic bulletin released on Friday sees the economy expanding 0.6 percent this year and 0.9 percent next, down from prior projections of 1 percent and 1.1 percent respectively. The central bank also said the economy may have shrunk at the end of last year. Italy's national statistics bureau will release preliminary gross domestic product numbers for the fourth quarter on Jan 31.

The government has also pushed back against newspaper reports that it will need to pass a revised budget to take into account the slowing economy, which could cause a shortfall of about 4 billion euros ($4.5 billion) in public accounts.

Any revenue shortfall would likely mean that Italy won't be able to keep its pledge to the European Union to hold the deficit at 2.04 percent of gross domestic product this year. The number was agreed to after a protracted standoff with the EU. The government initially sought a higher target of 2.4 percent that rattled the euro area and helped make Italian bonds among the worst-performing securities of the region last year.

Premier Giuseppe Conte has said repeatedly that it is too early to know whether a revision of the budget is needed, while acknowledging on Friday that “we know the general economic situation isn't favorable.”

To contact the reporter on this story: Alessandra Migliaccio in Rome at amigliaccio@bloomberg.net

To contact the editors responsible for this story: Vidya Root at vroot@bloomberg.net, Andrew Davis, James Amott

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