Italy grows 1.5 percent in 2017, public finances improve but bank bailout funds not yet included

Italy’s economy posted firm growth of 1.5 percent last year, while the budget deficit declined more than expected and the debt edged down in line with the government’s target, data showed on Thursday.

The data comes just three days before a parliamentary election and both the ruling Democratic Party (PD) and the opposition are likely to try to use it to their advantage ahead of Sunday’s vote.

The public finance figures offer arguments for PD leader Matteo Renzi to say his party has put the country on a firmer footing, although national statistics institute ISTAT warned that its budget deficit and debt figures may be revised up.

The 1.5 percent increase in gross domestic product last year was the highest since 2010 and followed an unrevised 0.9 percent rise in 2016, national statistics bureau ISTAT reported.

Under the PD, Italy emerged in 2014 from its steepest post-war recession. However, it has remained among the most sluggish economies in Europe, and GDP is still almost 6 percent lower than it was before the international financial crisis in 2008.

Moreover, poverty has increased even during the modest recovery of the last four years and unemployment remains significantly higher than the euro zone average.

The 1.5 percent growth rate last year was in line with the most recent target of Prime Minister Paolo Gentiloni, and the outgoing government has targeted the same 1.5 percent rate for 2018.

Italy’s budget deficit came in at 1.9 percent of GDP last year, ISTAT said, down from 2.5 percent the year before and below the government’s target of 2.1 percent.

However, ISTAT cautioned that the budget deficit, as well as public debt, could be revised up because they do not include money used by the government to save two regional banks in northern Veneto.

The debt – the highest in the euro zone after Greece’s as a proportion of GDP – fell last year to 131.5 percent of output, ISTAT said, up from a record high of 132.0 percent in 2016.

Chronically slow growth has made it hard for Italy to cut its debt, and all the main parties at the election say if they win power they will push for the EU to relax its so-called “fiscal compact,” which mandates severe fiscal consolidation for high-debt countries like Italy.
Source: Reuters (Reporting by Gavin Jones)