Debt and pensions hold back Italy’s economy. And the EU criticizes the Superbonus scheme

Brussels – Italy in 2024 will have a better growth rate than others (0.9 percent), reflecting an ailing Europe even if there are timid signs of recovery. In 2025, it will avoid being at the bottom of the list for gross domestic product performance (1.1 percent, with German GDP at 1 percent doing worse). But the European Commission’s spring economic forecasts for the country are not all roses, starting with public accounts, with public debt projected to explode in 2025.

Compared to the Autumn forecasts, the EU revised the debt-to-GDP ratio downward for 2023 and 2024 to 137.3 percent (from 139.8 percent) and 138.6 percent (from 140.6 percent), respectively. But it adds almost a point for 2025, where debt is expected at 141.7 percent of GDP rather than 140.9 percent. In addition, the deficit situation will lead the country to an excessive deficit procedure. The 7.4 percent will be reduced to 4.4 at the end of this year, rising to 4.7 percent next year.

Brussels notes that in Italy, current primary expenditure growth is driven by the indexation of pensions to the still-high inflation of 2023 and the renewal of public wages in 2022-2024, partly offset by some savings from the spending review (0.1 percent of GDP). Monetary policy decisions also weigh. “Higher interest rates on new bond issuances are projected to push interest payments to 4.0% of GDP.”

Then there is the lunge into the Superbonus. The EU executive believes that in the future, the stock-flow adjustment will play an important role in debt developments, as tax credits for housing renovation, which were already recorded on an accrual basis in the deficit, start being fully reflected in the cash flow: “Together with a less favourable interest-growth-rate differential, it is set to lead to an increase in the debt ratio to 141.7% of GDP by 2025.”