Italy's Growth Outlook Is Cut by IMF in Warning to Government

(Bloomberg) -- The International Monetary Fund revised down its forecast for Italy’s economic growth this year, warning that any new tensions over public finances may hurt the nation’s output, borrowing costs and banking system.

The fund’s new estimate for 2019 matches revised projections that the Bank of Italy published in its quarterly economic bulletin on Friday. Deputy Premier Luigi Di Maio of the populist Five Star Movement criticized the central bank over the weekend, saying it “is often wrong” and questioning the timing of its report.

The euro region’s third-biggest economy is seen growing 0.6 percent in 2019, down from an October estimate of 1 percent, the IMF said Monday in an update to its World Economic Outlook. The gross domestic product is forecast to rise 0.9 percent in 2020, unchanged from the prior projection, the Washington-based fund said.

The export-reliant country’s slowdown is part of a broader weakening in the euro region, with powerhouse Germany’s economic prospects also revised down. Italy’s projected 2019 growth is the lowest among the nations listed individually in the IMF overview of its latest projections.

Italy is also singled out for the risks related to its public debt, which at more than 130 percent of output is the euro region’s second-biggest ratio after Greece.

“Italian spreads have narrowed from their October–November peaks but remain high. A protracted period of elevated yields would put further stress on Italian banks, weigh on economic activity, and worsen debt dynamics.”

The Italian government last year clashed with the European Union over its budget targets that were eventually revised in a last-minute deal. The tense talks with the EU’s executive arm prompted an increase in the nation’s borrowing costs, which had a limited impact on the loan rates for families and businesses.

©2019 Bloomberg L.P.