Italy’s Economic Risks Grow as Gualtieri Seeks Stimulus Money

(Bloomberg) -- Italy’s economic outlook is growing dimmer, adding pressure on the government to deliver on its tricky promise of running an expansionary budget while setting aside billions to avoid a planned increase in sales tax.

Finance Minister Roberto Gualtieri is scrambling to put together funding to contain the deficit, avoid economic stagnation and spur growth despite the millstone of high debt that leaves little room for extra spending. Gualtieri is due to present a draft of the budget to the European Commission by Oct. 15, before final approval by year end.

“My aim is to relaunch Italy’s growth and employment,” Gualtieri told the Confindustria business lobby on Monday. “The government’s 0.6% growth forecast for next year is balanced, even prudent.”

The Italian economy is officially forecast to barely grow this year, though the new government led by Prime Minister Giuseppe Conte aims to boost that to 0.6% through investment and lower labor taxes, and by countering tax evasion and cutting unemployment.

The target already looked hard to achieve, and on Monday Gualtieri got a reminder of the risks facing the euro area’s third-largest economy.

Statistics office Istat warned that the outlook is negative and that “short-term perspectives for Italian production are weak.” Figures due Thursday are forecast to show industrial output rose 0.1% in August, though that would follow declines of 0.7% and 0.3% the previous two months.

On Tuesday, the country’s accountants’ association added to the gloom, saying that a majority of small and micro-companies -- the backbone of the Italian economy -- are struggling and expect things to get worse in coming years. Many businesses are putting off paying salaries and taxes as they face delays in getting paid by suppliers.

Confindustria predicts that the economy will stagnate both this year and next unless a planned sales tax increase of 23 billion euros ($25 billion) is averted -- something Gualtieri has promised to do.

Avoiding the automatic increase due to kick in next year will be “crucial” for Italy’s economic outlook, the group said. It forecasts 0.4% expansion in 2020 if that happens.

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But one month into the job, Gualtieri has to finely balance deficit reduction with Italy’s need for investment, as well as appeasing the European Commission.

The government’s draft outlook set a 2020 deficit target at 2.2% of gross domestic product, meaning that the structural deficit will worsen by 0.1 percentage point next year, instead of the 0.6 percentage point improvement that Italy had committed to.

“We are confident that the flexibility we are looking for is within the rules, we have constant dialog with Brussels,” Gualtieri said Monday. “We expect a positive reaction to our budget.”

--With assistance from Flavia Rotondi.

To contact the reporters on this story: Alessandro Speciale in Rome at aspeciale@bloomberg.net;Chiara Albanese in Rome at calbanese10@bloomberg.net

To contact the editors responsible for this story: Chad Thomas at cthomas16@bloomberg.net, Jerrold Colten

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