Italy Sees Slower GDP Growth Due to Temporary Factors

Italy sees slower GDP growth due to high energy costs, economy minister says

Italy's Economic Outlook and Policy Responses

By Giuseppe Fonte and Angelo Amante

ROME, April 9 (Reuters) - Italy is preparing to cut its GDP growth estimates to factor in the negative impact of rising energy prices stemming from the crisis in the Middle East, Economy Minister Giancarlo Giorgetti said on Thursday.

Revised Growth Forecasts

Addressing parliament, Giorgetti said downward revisions would be limited as the latest data did not point to a structural deterioration in the Italian economy.

The darkening economic outlook will however make it more difficult for Italy to bring its deficit below the EU's 3% of GDP ceiling this year from 3.1% in 2025, as agreed with European Union authorities.

Government Growth Estimate Changes

Sources have previously told Reuters ​the government is considering cutting its estimate for this year's growth to 0.5% or 0.6% from a ​current 0.7% target, ⁠and lowering next year's outlook to 0.6% or 0.7% from 0.8%.

"Downward revisions to growth forecasts are limited and are mainly attributable to external and temporary factors, primarily the energy crisis," Giorgetti said.

Italy is due later this month to update its public finance and GDP growth estimates for 2026 and the following years.

Budget Deficit and EU Rules

Asked about the risk of exceeding the 3% limit this year, Giorgetti told reporters the government would set conservative assumptions in its new budget framework.

"Let's remain cautious, as always," he said.

Potential Suspension of EU Budget Rules

Giorgetti added that European Union authorities should consider a temporary suspension of budget deficit rules if the U.S.-Israeli war against Iran flares up again.

Historical Precedents for Rule Suspension

The EU activated between 2020 and 2023 a 'general escape clause' to suspend budget rules and allow member states to respond to the COVID-19 pandemic, which had triggered lockdowns and economic downturns in EU countries and the closure of Europe's borders.

That clause, however, can be tapped in the event of a severe economic downturn in the euro area or the EU as a whole, something which is not currently expected by leading forecasters.

Italy's Current Fiscal Constraints

Italy is currently under an EU infringement procedure for its excessive deficit (EDP), limiting leeway to adopt relief measures for families and firms hit by higher energy bills.

Rome could activate a national escape clause allowing member states to deviate from budget goals to boost defence spending or in response to exceptional circumstances outside their control.

Italy has so far ruled out doing so as long as Rome is under EDP.

"Should the conditions for exiting the procedure not be met, the resulting decisions would be referred to Parliament," Giorgetti said when talking about the national escape clause.

(Editing by Gavin Jones;Editing by Elaine Hardcastle)