The European Union passes Italy: in 2014, deficit at 2.6 percent of GDP

According to Winter 2014 Forecast, in 2015 it will decrease at 2.2 percent. Economic growth won’t be as positive: 0.6 percent this year and 1.2 percent in 2015. Public debt will hit a record, 133.7 percent of GDP in 2014, then it will decrease to 132.4 percent in 2015. Europe improves. Rehn: “Recovery is gaining ground, but it still modest. We need to stay the course of economic reforms”

Little growth, but the deficit is to stay under 3 percent. Thus, good news for Italy, even partially, from the Winter 2014 Forecast issued today by the European Commission. We could try to appeal to the investment clause – that is, an allowed deviation linked to the national expenditure on projects for growth, with positive, direct and verifiable long-term budgetary effects, which Rome is trying to obtain. In 2014, a contained growth at 0.6 percent, and only in 2015 the Italian GDP will grow over one percentage point (+1.2 percent), that is the forecast made by Enrico Letta. The modest growth of GDP will be coupled by a failed reduction of public debt: the European Commission estimates that this year Italy will hit a record: 133.7 percent of GDP, and will decrease at 132.4 percent in 2015. Not a good sign for Italy.

Better news from the deficit/GDP ratio: Italy won’t exceed the 3 percent limit, remaining under it both in 2014 (2.6 percent) and in 2015 (2.2 percent). Timid inversions of the trend on the employment side, even if Italy won’t record significant leaps. The labour market will remain almost frozen in 2014 (forecast +0.1 percent), and will register improvements in 2015 (+0.5 percent).

The European Commission thinks Italy will be active on total investments: they should increase by 1.7 percent this year and by 3.7 percent in 2015. Unemployment will remain among the highest, with average rates higher than in the EU and the eurozone both in 2014 (12.6 percent, compared with 10.7 and 12 percent, respectively) and in 2015 (12.4 percent, compared with 10.4 and 11.7 percent, respectively).

The Commission’s analysis of Italy is quite cautious: Italy came out of recession only during the fourth quarter of 2013, “yet very timidly,” hence Italian growth is “feeble.” The recovery, according to the Commission, is “driven stronger external demand,” followed by a strong fall in domestic demand. “With still difficult labour market conditions,” reads the report, “private consumption is expected to rise only marginally and by less than disposable income as households restore their savings.” Even Italian banks are expected to contribute to the recovery: they will “continue adjusting their balance sheets,” which is set to support domestic demand and ultimately output growth, yet only in 2015.

At European level, Winter 2014 Forecast point to a continuation of a general, yet slow, recovery. Timid optimism used in Brussels and Strasbourg (the report has been issued in both cities, in the occasion of the plenary session of the Parliament), yet positive evaluation: the European Commission foresees “a continuation of the economic recovery in most Member States,” and this has led the Commissioner of the Union for Economic Affairs, Olli Rehn, to say that “recovery is gaining ground.” Notwithstanding an increase by 0.1 percent of the GDP in the European Union in 2013, the European GDP will register an icrease by 1.5 percent in 2014 and by 2 percent in 2015. In the eurozone, we will pass from contraction (GDP at -0.4 percent in 2013) to expansion (GDP at +1.2 in 2014 and +1.8 in 2015). The forecast for inflation in the EU and the euro area is now expected to dip to 1.2 percent in 2014 before rising again to 1.5 percent in 2015. In the euro area, inflation is seen at 1.0 percent in 2014 and 1.3 percent in 2015. Unemployment is set to decrease: employment growth is set to accelerate, resulting in a slight reduction of unemployment from 10.9 percent in 2013 to 10.4 percent in 2015.

“The strengthening of domestic demand this year should help us to achieve more balanced and sustainable growth,” said commissioner Rehn, “The worst of the crisis may now be behind us, but this is not an invitation to be complacent, as the recovery is still modest.” A clear-cut message for everyone: “To make the recovery stronger and create more jobs, we need to stay the course of economic reform”.

Emanuele Bonini