Italy says budget deficit won't rise despite crumbling growth

By Giuseppe Fonte and Gavin Jones

ROME (Reuters) - -Italy on Wednesday committed to keeping its budget deficit in check even as it slashed its economic growth forecasts amid market turmoil over U.S. trade tariffs.

The government's multi-year economic framework approved by cabinet estimated the 2025 budget deficit at 3.3% of national output, in line with a previous target set in September, Economy Minister Giancarlo Giorgetti said at a press conference.

Giorgia Meloni's government confirmed its goal of bringing the fiscal gap below the European Union's 3% of GDP ceiling in 2026, maintaining a 2.8% target.

The economic plan forecast gross domestic product (GDP) in the euro zone's third largest economy to grow by 0.6% this year, just half the 1.2% target set in September.

Next year's expansion is seen at 0.8%, down from a previous 1.1%. Growth is also seen at 0.8% in 2027.

As Giorgetti spoke to reporters in Rome, U.S. President Donald Trump announced that he had suspended for 90 days many of his sweeping trade tariffs announced last week, injecting fresh uncertainty into the Italian government's forecasts.

"We cut our growth forecasts in line with the market consensus, the news that has come out a few minutes ago could lead them to be raised again," Giorgetti said.

The Italian economy has barely grown since the middle of 2024, with GDP edging up 0.1% in the fourth quarter of last year from the previous three months, after stagnating in the third quarter.

Global financial markets have tumbled since Trump's April 2 announcement of sweeping tariffs on allies and rivals alike around the world.

The Milan bourse has fallen by around 15% over the last week and Italian bond yields have risen sharply.

U.S. markets immediately rallied in response to the U.S. president's announcement of a suspension in the tariff hikes, which came after the close of European stock markets.

Under Trump's plans announced last week Italy, which has a large trade surplus with the United States, would be subject to a general tariff of 20% along with the rest of the European Union.

Italy is under a so-called Excessive Deficit Procedure by the European Commission and its new budget framework aims to both meet EU requirements and comply with the latest reform of the bloc's fiscal rules.

The country's public debt, proportionally the second-highest in the euro zone after Greece's, is seen at 136.6% of GDP this year, according to the government's latest projections, marginally down from the previous 136.9% target set in September.

The debt is seen rising to 137.6% in 2026 before edging down to 137.4% in 2027.

Giorgetti also said Rome would press ahead with a previous announced sell off of state assets plan worth some 20 billion euros ($21.93 billion), though he added that current market turmoil made it necessary to move with caution.

($1 = 0.9122 euros)

(Additional reporting by Angelo Amante)