Italy's 2024 Budget: Mixed Signals for PM Meloni's Administration

By Gavin Jones

ROME (Reuters) - Italy's economy grew by a listless 0.7% last year, below the government's official 1% forecast, but the budget deficit fell by more than expected as tax revenues jumped, data showed on Monday.

The details of public accounts issued by national statistics bureau ISTAT offered both good and bad news for Prime Minister Giorgia Meloni, who is still riding high in opinion polls after two-and-a-half years in office.

The 0.7% increase in gross domestic product (GDP) in the euro zone's third-largest economy, boosted by four more working days than the year before, marked the same growth rate as in 2023.

The breakdown of the data showed growth came roughly equally from domestic demand and trade flows. Exports rose 0.4% from the year earlier while imports declined by 0.7%.

This year, the Treasury is targeting growth at 1.2%, a figure considered unrealistic by virtually all independent bodies.

GDP stagnated in both the third and fourth quarters of last year, leaving an extremely weak carryover for 2025, when most analysts expect growth of around 0.7% for a third year running.

Rome's budget deficit came in last year at 3.4% of GDP, a steep decline from 7.2% in 2023 when it was inflated by costly state incentives for energy-saving home renovations, and well inside the government's 3.8% target.

Economy Minister Giancarlo Giorgetti said in a statement that the data "confirms what we have always said with conviction, that public finances are in a better state than was expected."

Meloni is targeting the deficit at 3.3% of GDP this year and to fall below the European Union's 3% limit in 2026.

ISTAT's data showed that excluding debt-servicing costs from state accounts, Italy posted a budget surplus last year equal to 0.4% of GDP, following large deficits in the previous three years.

This so-called "primary balance" is considered an indicator of the underlying state of public finances and the prudence of budget policy, and Giorgetti called the return to a surplus a "moral satisfaction."

He said the government's priority was now to boost growth against "an extremely problematic backdrop not only for Italy but for the whole of Europe."

Tax revenues and welfare contributions rose significantly last year to 42.6% of GDP from 41.4% in 2023, posting the highest level for several years.

While helping public finances, the increase in this closely-watched "tax burden" provides ammunition for the opposition to criticise Meloni, who came to power on a tax-cutting platform.

Despite the fall in the budget deficit, Italy's public debt - proportionally the second-highest in the euro zone after Greece's - rose to 135.3% of GDP in 2024 from 134.6% the year before.

The government had targeted 135.8% for 2024 and has pencilled in 136.9% for this year.

The rising debt trend is due to the lasting effect on public accounts of the home renovations scheme, even though it has been largely phased out.

(additional reporting by Antonella Cinbelli, graphic by Stefano Bernabei, editing by Keith Weir)