Italy Has More Space to Grow, Spend Than the EU Claims

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Italy’s government may have more leeway for fiscal stimulus without falling foul of European Union rules than European Commission economic predictions would suggest, according to Bloomberg Economics. The commission estimates Italy’s output gap was only 0.1% of potential GDP on average in 2018, while BE thinks it was closer to 2%. That’s partly because the commission focuses too narrowly on the economy’s latest performance, which underestimates potential in the aftermath of a crisis and overestimates it following a boom, BE says.

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