BCN-24, 25 New Italian government faces tough economic challenges

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New Italian government faces tough economic challenges

MILAN, Aug 29, 2019 (BSS/AFP) – The new coalition government Italy’s Giuseppe
Conte has been charged with forming faces many challenges in a stagnant
economic environment.

Here are some of the main obstacles to growth, stability and success:

– Stagnant growth –

The eurozone’s third economy is not well. After a technical recession in
the second half of 2018, when output shrank by 0.1 percent, Italy’s economy
saw zero growth in gross domestic product in the first half of 2019.

Both the European Commission and International Monetary Fund predict the
Italian GDP will grow by just 0.1 percent this year, while the outgoing
government predicted growth of 0.2 percent. Some experts think Italy could
slip back into recession.

The country is feeling the squeeze from generally slow European growth and
the economic tensions between Washington and Beijing, but also by businesses’
reluctance to invest in the current global environment and domestic political
instability.

– Unemployment and poverty –

Unemployment has declined slightly since the start of the year but in June
still stood at 9.7 percent of the active population. That compares with the
eurozone average of 7.5 percent and is much higher than 3.4 percent in the
Netherlands and five percent in Germany.

Youth unemployment is even more worrying. Around 28 percent of young people
aged 15-24 who want a job are unemployed, almost double the European average
of 15.4 percent.

Five million Italians — or 8.4 percent of the population — live in
poverty.

There is a yawning gap between the north and south of the country. In the
south, 10 percent of families live in poverty, compared to 5.8 percent in the
more industrialised north.

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The new government will have to increase efforts to revitalise the south,
which workers are increasingly leaving due to a lack of jobs and
infrastructure such as roads, schools and social services.

– Massive debt –

The economy is further unbalanced by Italy’s colossal public debt which
stands at more than 2.3 billion euros or 132 percent of GDP, the highest rate
in the eurozone after Greece.

Brussels is constantly calling on Rome to reduce its deficit, and thus its
debt. The outgoing populist government was frequently clashed with the
European Commission, mainly over public spending.

The Five Star Movement-League coalition eventually accepted to reduce its
deficit to 2.04 percent of GDP in 2019, instead of 2.4 percent, but the 2020
budget will again be problematic.

If Italy does not manage to reduce spending by 23 billion euros, it will
face an automatic rise in value-added tax on January 1.

Such a measure would reduce consumer spending, hit the poor the most and
hurt business profits as investment is reduced.

The result would be “a vicious circle, because if businesses make fewer
profits, they will invest less”, said Carlo Alberto Carnavale Maffe,
economics lecturer at Milan’s Bocconi University.

At the same time, “exports are in crisis because of the trade war started
by the United States and the German economic slowdown,” he said.

Agreeing the budget will be one of the first tasks of the incoming
government.

In order to satisfy Brussels, the government will need either to slash
public spending or raise taxes.

BSS/AFP/SR/1825 HRS