The economic growth forecasts in Italy presented in the government's Economic and Financial Document (DEF) are consistent with a difficult situation. This was stated by the Head of the Economics and Statistics Department of the Bank of Italy Sergio Nicoletti Altimari audition in front of joint budget commissions of the House and the Senate on Def adding that, however, attention must be paid to the effects of inflation and the reduction of business loans. Furthermore, Bankitalia suggests, they would be needed more structural reforms in fiscal and more effort to reduce the public debt.
The forecasts of the Def on economic growth are consistent
After the "setback" in the country's economic performance in the fourth quarter of 2022, "according to the most recent information - says Altimari - the weakening of economic activity could be less pronounced and shorter than expected was expected only a few months ago”. “Encouraging signs come from the trend of the trust of families and businesses and by the increase in the indices of purchasing managers, back in all sectors above the threshold which corresponds to an expansion of activity”, added the manager of via Nazionale.
“In the investigations conducted by the Bank of Italy between February and March – he added – the judgments of companies on the general economic situation have further improved, supported by favorable evaluations on the evolution of the question and from the alleviation of the difficulties associated with energy costs and to the availability of raw material and intermediate inputs”.
The forecasts presented in the Economic and Financial Document (DEF) envisage, with few differences between the trend and planning scenario, GDP growth of around 1 percent this year and 1,5 percent next year. These perspectives turn out overall consistent with the elements that are emerging, linked to the recovery of economic activity compared to the fourth quarter of 2022, to household and business confidence, to consumption, says Bank of Italy: "The short-term picture appears slightly more favorable than that underlying the our latest screenings released in January” (0,6% GDP in the current year, ed) and the forecasts presented in the Def "although they are in the upper part of the range of available estimates", are overall "consistent" with the situation.
Bank of Italy: "Strong risk factors". The Pnrr is “crucial”
However, these are “prospects surrounded by extraordinary uncertaintyon which they weigh strong downside risks”, therefore “the role” of “continues to be relevant”. stabilization of policies”. It then becomes "crucial” the correct adoption of the interventions financed by the Pnrr: to “fully deploy their effectiveness it is crucial that their use is marked by timeliness and efficiency”
"A timely and effective implementation of the reforms and investments envisaged by the Pnrr, with the adjustments that should prove necessary, constitutes a key element so that the development prospects of the Italian economy are realized as outlined in the Def", added Altimari, underlining that in the Def "the Government has chosen an overall prudent approach, which in any case allows for a gradual improvement in public finances in the short to medium term . The planning of a further slight consolidation in the three-year period 2024-26 would greater security the process of reducing the incidence of debt would help the perception of solidity of the accounts and would also have positive repercussions on the risk premium on Italian public securities. It would also facilitate a positive evaluation of the Italian Stability Program by the European Commission”.
Inflation and corporate credit need to be watched
The permanence of inflation at a still very high level, especially in the core component, continues to worry Bank of Italy, especially if the drop in energy prices does not also pass through to the final prices of other goods: in that case "the consequences for growth could be longer,” Altimari points out. It should also be monitored "the sharp decline in credit to companies, largely a normal consequence of the monetary restriction", but which reflects both the repayments that companies have made by drawing on the large liquid assets at the banks, and "more stringent supply conditions".
Bank of Italy on debt: the primary balance must rise to 3%
Speaking of public debt, on which he also recently dwelt general director Luigi Signorini, one of his “progressive reduction is not impossible“, said Nicoletti Altimari answering the questions during the hearing. However, we need to "roll up our sleeves" and "requires maintaining a primary surplus not excessive, let's not talk about prohibitive levels, but adequate in the years to come". Answering a question, he adds that "at the end of the time horizon of the Def, the primary balance is 2%, something more would be needed, go more towards 3% and it would be necessary to push on the side of the growth, but it is not an impossible goal to achieve: it is a goal within our reach with an important effort”.
Bank of Italy: more structural interventions are needed for the tax authorities
A separate chapter is dedicated to the Government's decision to use 3 billion for the reduction of social contributions paid by workers with low-middle income.
The "temporary reduction in social security contributions payable by workers with medium-low incomes introduced by the latest budget law", (assuming the application thresholds already in force remain unchanged and the start of new reliefs from next May) would lead to a increase in disposable income slightly less than 200 euros in the year on average” says Nicoletti Altimari.
For this year "the Government is oriented towards not exploiting the positive effects on the accounts of higher growth than that programmed in the Budgetary Planning Document to achieve a further reduction in net debt, preferring to use them to finance expansionary measures“. The greater deficit would be used this year to reinforce “the temporary reduction in social contributions”, but “new resources will be needed in the future so as not to have to see a rebound in contribution rates. It would be preferable that this type of intervention be addressed in structural way for example within the tax delegation".
The text of the hearing recalls that the relief introduced by the previous government (budget law for 2022) resulted in higher debt of 1,5 billion for that year. With the Aiuti Bis decree of the summer of 2022, then, another 1,2 billion net was allocated to strengthen the contribution relief for the second half of the year alone. The cut currently in force was introduced with the budget law for 2023, employing 4,6 billion.
To reduce the tax burden it is necessary to identify adequate, structured and credible coverage
“The elevated tax burden it is a structural problem. Reduce it, especially for the poorer sections of the population, is an important goal that should result in the design of a permanent and sustainable intervention for public finances – said Nicoletti Altimari -. However, it could be difficult do not extend temporary cuts, since this would cause an abrupt increase in rates“. “The Document – he added – estimates that the related charges with the so-called "unchanged policies" will amount to about 0,3 per cent of GDP in the next two years and 0,4 in 2026. The Government plans to identify the resources to finance these policies - and the continuation of the cut in the tax burden in 2025-2026 – also through a strengthening of the public spending review and a “major collaboration between the taxman and the taxpayer. It will be important that adequate, structural and credible coverage be identified before proceeding with spending increases and cuts in income”.
Balance forecasts only slightly more favourable
“Despite an overall more positive macroeconomic scenario and a lower-than-expected deficit in 2022 (excluding the effect of the reclassification of building subsidies), the new forecasts of public finance balances, under current legislation, are only slightly more favorable than last autumn's programs for both the current and next year (about 0,15 percentage points of GDP) and substantially unchanged for 2025″ says Nicoletti Altimari adding as “ the comparison between the two scenarios is currently complex, due both to the change in the criteria for accounting for building bonuses and to the changes in the profile of the interventions to be carried out under the NGEU programme".
