Prime Minister Giorgia Meloni is paring back her ambitions to bring Italy’s deficit toward the European Union’s 3% limit next year, according to people familiar with the matter.
(Bloomberg) — Prime Minister Giorgia Meloni is paring back her ambitions to bring Italy’s deficit toward the European Union’s 3% limit next year, according to people familiar with the matter.
The shortfall targeted for 2024 may now be as wide as 4.5% because of a weaker economy and the need to keep tax-cut promises to voters, said the people, who declined to be identified because such projections are confidential. The original projection envisaged in April was 3.7%.
The 2023 deficit is seen at as much as 5.5% amid weaker-than-expected economic growth of 0.8%, the people said. The finance ministry declined to comment because final figures haven’t been agreed upon.
With Meloni’s coalition government scheduled to present new budget projections on Wednesday, the numbers showcase the challenge as ministers try to square the circle of generous election promises and strained public finances.
That headache will intensify next year as the EU ends the suspension of its deficit regime enacted during the pandemic, putting the spotlight on indebted countries such as Italy that aren’t conforming to the bloc’s need for fiscal discipline.
While the deficit is still anticipated to narrow, markets are already on edge. The extra yield investors demand to hold Italy’s 10-year bonds over safer German securities has widened almost 30 basis points in the past month alone.
The gauge is now trading over 194 basis points, the widest since early May. That’s still far below levels that spurred the European Central Bank into action last year, but it shows a growing sense of unease over the government’s deteriorating finances.
While Finance Minister Giancarlo Giorgetti earlier this year suggested that a tourist boom could fuel overall growth exceeding 1% in 2023, such an outcome looks increasingly unlikely as Italy suffers from the global slowdown in industrial demand.
That’s heaped pressure on Meloni as she contends with the demands of a fractious coalition, just as the public finances also suffer from data revisions that changed the treatment of generous tax breaks granted under a previous government.
–With assistance from Constantine Courcoulas.
(Updates bond spread in seventh paragraph)
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.