Italy slashes growth outlook as Ukraine weighs in and confirms deficit target – draft

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  • Government sees 2022 GDP at 3.1% vs. previous forecast of 4.7% – draft
  • GDP would have decreased in the first quarter
  • Additional stimulus of 5 billion euros envisaged in 2022
  • Deficit confirmed at 5.6% of GDP in 2022, debt reduced to 147%

ROME, April 6 (Reuters) – Italy cut its growth estimate for this year as war in Ukraine weighs on the economy, while confirming a previous budget deficit target of 5.6% of national output , according to a draft government document seen by Reuters. .

The Treasury’s annual Economic and Financial Document (DEF) projects gross domestic product in the eurozone’s third-largest economy to grow by 3.1%, down from a projection of 4.7% made last September, according to the draft.

For 2023, the government forecasts GDP growth of 2.4%, down from the previous target of 2.8%.

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The economy likely contracted in the first quarter, the DEF project showed. It should recover in the second quarter, the document says, while acknowledging the growing difficulties related to events in Ukraine.

“The economic outlook, conditioned for the past two years by the pandemic (COVID), is now marked by uncertainty regarding the conflict between Russia and Ukraine and the consequent increase in commodity prices and fluctuations in financial markets. “, says the project.

A lasting war “would have a strong impact on inflation as well as economic growth,” he said.

In a worst-case scenario assuming severe gas supply shortages for Italy and other European countries, the Treasury estimates growth of just 0.6% in 2022 and 0.4% next year.

The new targets are expected to be approved by cabinet later on Wednesday and will form the preliminary framework for the 2023 budget.

Public debt, proportionally the highest in the euro zone after that of Greece, is targeted in the DEF at 147% of GDP this year, against 149.4% previously, and is expected to decline to 145.2% in 2023, according to the project.

In confirming the deficit target of 5.6% this year, Prime Minister Mario Draghi is helped by the fact that the fiscal gap is on track to reach 5.1% under an unchanged political scenario.

This allows for potential 9.5 billion euros ($10.38 billion) of additional spending or tax cuts.

However, €4.5bn will go to funding energy price cap programs approved earlier this year which have only been funded temporarily, leaving €5bn available for the government to spend this year. without increasing the target of 5.6%.

Rome plans to use those resources in April to keep energy costs capped, expand funding for existing guarantee schemes on bank loans and help Ukrainian refugees, the document says.

The fiscal gap is estimated at 3.9% of GDP in 2023, unchanged from the previous target.

($1 = 0.9156 euros)

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Additional reporting by Angelo Amante and Gavin Jones, editing by Gavin Jones and Alex Richardson

Our standards: The Thomson Reuters Trust Principles.

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