(Bloomberg) -- The Italian economy, the euro region’s third-biggest, will expand this year even less than in 2015 after failing to growth in the second quarter, the country’s main employers’ lobby said.
Gross domestic product will increase an annual 0.7 percent, compared with the 0.8 percent growth last year, Confindustria said in a report presented in Rome on Thursday. Earlier this year, the lobby had projected the economy to grow at the same pace as in 2015. The economy will expand at an even slower pace of 0.5 percent next year, the report said.
“The revision is entirely due to the flat reading in the three months through June that contributed to worsen an already weak outlook for the economy," Luca Paolazzi, Confindustria’s chief economist told reporters. “There are also downside risks for next year,” Paolazzi added, declining to say whether the country risks slipping into a new recession this year or next.
The Italian economy stalled in the three months through June after expanding in the previous five quarters. Still, monthly industrial production rose in July, prompting hopes of a renewed push to the recovery in the rest of the year. Finance Minister Pier Carlo Padoan has said that the government will revise down its economic forecast of 1.2 percent GDP growth for 2016 in an update due later this month.
Sales abroad of Italy’s goods and services will rise 1.4 percent this year while gross investments will grow 1.8 percent, the Confindustria report also said. With the lower than expected economic growth, the government’s target of a cut to the debt-to-GDP ratio will be missed, Confindustria said. It expects the ratio to rise to 133.3 percent this year and 134 percent next from 132.6 percent in 2015.
Italy will maintain a target of debt-load reduction for 2016 as the country tries to avoid deflation, Padoan said in a Sept. 2 interview with Bloomberg Television. In August the country’s inflation rate was negative for a seventh straight month, according to a European Union gauge.
Italy’s economy will fare this year “better than in 2015,” when GDP expanded 0.8 percent, Prime Minister Matteo Renzi said earlier this month.
The business lobby reiterated its call on Italians to vote in favor of a constitutional reform to which Renzi has previously linked his political future. In a separate report in June, Confindustria said that a “no” vote in the referendum, expected in November or December, would spark a chain reaction eventually pushing back Italy again into economic recession.
"We think the referendum amounts to a bigger risk," Paolazzi said Thursday, when asked if the country’s banking woes have to be considered a reason for concern. "A negative outcome of vote would mean an halt to the process of reforms."