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ITALY-INVESTOR-ECONOMY
Investor worries weighing on Italy’s economic growth prospects: News
Analysis
ROME, July 8, 2018 (BSS/Xinhua) – A lack of investor confidence in Italy’s
new government started to weigh on economic growth prospects in the second
quarter of the year, economists told Xinhua, though the consensus is that it
is still too early for government policies to have a direct impact on the
country’s economic performance.
Investors were already feeling jittery heading into the country’s March 4
general election, pushing interest rates on government bonds higher. Higher
interest rates, a sign that investors see more risk in the country, raise
borrowing costs for the Italian treasury and reduce its spending power.
Since the June 1 installation of the government following weeks of
difficult negotiations, interest rates have pushed even higher: the spread —
the difference in interest rates in Italy compared with Germany, Europe’s
biggest economy — was higher than normal at 130 basis points in March. They
have now surged to more than 240 basis points, a level some economists say is
unsustainable over a long period of time.
According to Stefania Tomasini, head of Italian economic modeling with
Prometeia Associazione, a consultancy, those developments have so far had a
limited impact on economic growth.
“There is no direct impact yet with the government in power for so little
time,” Tomasini told Xinhua. “Borrowing costs are higher but that is based on
faith in the government.”
Tomasini said Prometeia modeling predicts the economy will show growth of
just 0.2 percent for the three-month period that ended June 30. That’s below
the 0.3-percent growth rate in the first quarter versus the previous period
as well as the predicted 0.3-percent growth the consultancy expects for the
July-to-September period.
Prometeia is predicting 1.2-percent growth for 2018 as a whole, lower than
most estimates. For next year, predictions range from 1.1 percent (the IMF)
to 1.4 percent (Bank of Italy), with Prometeia models showing 1.2-percent
growth.
In comparison, the European Commission predicts the 19-nation eurozone to
grow by 2.3 percent this year and 2.0 percent in 2019. Italian economic
growth has trailed that of the eurozone as a whole in all but one year since
the euro currency was introduced in 2002.
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ITALY-INVESTOR-ECONOMY 2 LAST ROME
Despite market nerves about the government’s plans — which include
lowering taxes and establishing a minimum monthly income — Minister of
Finance Giovanni Tria said Thursday the government won’t be pressured to
change its priorities.
“Higher economic growth must come from the gradual implementation of the
government program,” Tria said in an interview. Tria also said he did not
believe the government program should worry investors, adding that a
downgrade in the country’s economic health from ratings agencies “wouldn’t be
justifiable.”
For now, government leaders can only make declarations of their economic
plans. But the government will have to show its cards in September and
October, when it begins work on the country’s 2019 budget. Until then, the
government will have to focus on lining up its priorities, according to Ugo
Arrigo, a professor of economics and statistics at the University of Milano
Biocca.
“It’s been said that you can’t make a major revolution if you don’t have
the money,” Arrigo told Xinhua. “Where will the money come from and what will
the government do? It’s a good question, and I don’t think we will have a
true, clear answer until October.”
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