Italy to cut growth forecasts, economy minister says

[September 13, 2016]  By Valentina Za

MILAN (Reuters) - Italy will cut its economic growth estimates, the economy minister said on Tuesday, making Prime Minister Matteo Renzi's promise to cut taxes and reduce public debt look even harder to achieve.

"Growth will be revised down in forecasts the government is about to release as background to the budget law," Economy Minister Pier Carlo Padoan said at a Euromoney conference.

The euro zone's third largest economy stagnated in the second quarter and national statistics bureau ISTAT said it would remain weak in the near term.

The government's last forecast, made in April, envisaged growth of 1.2 percent in 2016, strengthening to 1.4 percent next year, but most analysts now expect something under 1 percent this year and an even weaker reading in 2017.

Padoan did not give any clearer indication of the new forecast, which must be published by Sept. 27.

Italy continues to under-perform the euro zone, which is forecast to grow by 1.7 percent this year, the European Central Bank said this month, marginally raising its previous estimate of 1.6 percent.

The ECB trimmed next year's forecast to 1.6 percent from 1.7 percent. That would still be at least double the growth expected for Italy, dragged down for years by low productivity, low employment rates and stifling bureaucracy.

Italian employers confederation Confindustria forecasts growth of just 0.6 percent in 2017. Several large banks have even lower projections, with Barclays Capital forecasting a contraction of 0.1 percent.

Germany's DIW institute said last week that the euro zone's largest economy would expand by 1.9 percent this year but slow to 1.0 percent in 2017 when the impact of Britain's decision to exit the EU would be more strongly felt.

Tommaso Nannicini, Renzi's economics adviser, told Reuters on Monday: "Aside from the numbers in themselves, what worries me is that we are too far away from the euro zone average."

Italy's Finance Minister Pier Carlo Padoan waits for the start of an euro zone finance ministers meeting in Brussels, Belgium, July 11, 2016. REUTERS/Francois Lenoir

Padoan said there would be no room to cut income tax in the 2017 budget to be presented next month, although the government would maintain tax breaks already in place for companies that invest in new equipment.

"Growth is not what we would like," Renzi admitted in Milan at the opening of new offices of the German multinational engineering company Siemens on Tuesday.

Industrial output data offered some relief on Tuesday, rising by 0.4 percent in July from the month before, after two consecutive declines.

But the weaker growth outlook makes it harder for Rome to cut its huge public debt, the highest in the euro zone after Greece as a percentage of national output.

The Bank of Italy has warned that the government may not manage to meet its pledge that the debt, which stood at around 133 percent of GDP in 2015, will fall this year for the first time in eight years.

(Additional reporting by Luca Trogni and Francesca Piscioneri; Writing by Gavin Jones; Editing by Robin Pomeroy)

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