![]() ![]() However, this may do little to reduce Italy’s projected deficit in 2020, which the Commission estimates at 3.5% under the assumption that an automatic value-added tax hike would be scrapped without counteracting measures. This correction is brought about by unanticipated revenues and lower than projected costs from, for example, the citizen’s income. This will come only four months after Italy escaped an ‘Excessive Deficit Procedure’ (EDP) through a mid-year budgetary correction, which should reduce its 2019 fiscal deficit to the previously agreed 2.04% of GDP. Whichever path is taken, one of the first challenges of any new government will be to submit a proposal for its 2020 budget to Brussels by mid-October. How Mattarella intends to deal with an election and the design of the 2020 budget is uncertain, but he will most likely appoint a market-friendly caretaker government which should guide Italy through the budgetary process. Given its current polling strength, Salvini’s Lega will almost certainly emerge as the winner of these elections (Figure 5). Indeed, if talks between PD and Five Star break down, Italy will almost certainly return to the polls in late October or the beginning of November. Nevertheless, one thing PD and Five Star have in common is their willingness to avoid elections since this would relegate them into opposition while Five Star would incur a substantial loss of seats. Moreover, both parties are divided on several issues such as the high-speed railway to France and the Five Star-Lega migration laws, which suggests that talks can still break down in the coming days. Five Star leader di Maio intends to put the final decision to a vote through Five Star’s online platform on which plenty of voters are expected to oppose a tie-up, while Five Star also wants technocrats on important ministerial positions rather than PD’s preferred option of politicians. There are still some hurdles that need to be overcome before Conte-II can actually take office. This being said, Five Star is still likely to opt for deficit spending to boost welfare in Italy’s south, while PD’s policy reforms that must attract investments are unlikely to be free of charge either. Because of the lower hostility towards Europe, we would also expect this government to show greater awareness of Italy’s fiscal situation. Given PD’s pro-Europe stance, the risk of a euro-exit or a parallel currency being introduced will be virtually non-existent. What the policy agenda of a potential PD-Five Star government would look like is not entirely clear at this moment, but we can expect this government to be less hostile towards Europe. ![]() A PD – Five Star tie-up would enjoy a comfortable majority in the lower house (Figure 3), but would require the backing of some unaligned senators in the upper chamber (Figure 4). On Wednesday evening the Democratic Party (PD) and Five Star gave their official support to Conte-II to which President Mattarella responded by giving Conte an official mandate to form a government without returning to the polls. Political uncertainty has increased sharply in recent weeks following Salvini’s decision to pull the plug on the Five Star-Lega coalition which prompted prime minister Conte to offer his resignation. Given the prevailing political uncertainty and gloomy global economic outlook, private investment growth was likely weak. Together with the implementation of recent policy measures and the slide in inflation during recent months, this suggests that private consumption grew. Although it ticked up to 9.9% in July, the trend has been broadly positive in the past few years. ![]() As a result, the unemployment rate moved towards 9.7% in June, its lowest level since February 2012. Despite the weak growth figure, we do observe an improving labour market as Italy’s economy added jobs at a steady pace while the size of the labour force remained more or less stagnant throughout the second quarter (Figure 2). Istat provided little information about the drivers of the second quarter growth figure, but disclosed that industry contracted whilst services expanded. This adds to a recent series of weak growth data which, taken together, indicate that Italy’s economy has been stuck in stagnation since the second half of 2018 (Figure 1). Italy was unable to shake off concerns about its ailing economy during the second quarter of 2019 as GDP growth was flat at 0.0% q/q (down from 0.1% q/q in the first quarter).
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |