MNI: Italy Sees Lower 2025 Growth, Deficit Target Achievable

The Italian government will lower its 2025 growth forecast to "something close but below 1%" from the 1.2% projected last autumn, sources close to the governing coalition told MNI, noting that the figures do not take account of the effect of potential U.S. tariffs.

The government is set to present the forecasts with its new macroeconomic framework by April 10 and, in a departure from the norm, will do so based only on "current legislation" rather than incorporating the effect on the economy of expected legislative measures, the sources said.

Finance Minister Giancarlo Giorgetti believes it is preferable to leave room to respond to unforeseen events, rather than following the traditional approach of announcing policy measures in advance, they said.

Despite the downward growth revision, the impact on Italy’s public deficit is expected to be limited, following a better-than-anticipated 2024 outcome, sources said. Last year’s deficit closed at 3.4% of GDP, compared to the 3.8% forecast in autumn, supported by higher revenues despite slower-than-expected economic growth, according to statistics agency Istat. (See MNI: EU Defence Finance Not As Coordinated As Hoped - Official)

DEFICIT STILL ACHIEVABLE

Rome’s 2025 deficit target of 3.3% of GDP should remain achievable despite weaker growth, a source said, stressing that the government is closely monitoring the effects on bond yields of Germany’s big planned boost to investment in defence and infrastructure.

Tight spreads helped contain borrowing costs in 2024, and while bond yields have risen in recent weeks, they are not at an alarming level, sources noted.

It remains uncertain whether the Italian government will incorporate commitments regarding the country’s requested increase in defence spending into its projections. While many officials acknowledge the need for higher expenditure, few are willing to provide specific figures. (See MNI: Defence Spending Deepens Italian Government Fractures)

It is also unlikely that the finance ministry will offer much detail on the macroeconomic outlook, given the high degree of uncertainty and potential for future shocks, sources said. Furthermore, the government is unlikely to reveal by April 10 whether it plans to ask the European Commission to activate Italy’s national escape clause from European fiscal rules, which would allow for higher defence spending beyond the usual borrowing limits.

Italy closed 2024 with a debt-to-GDP ratio of 135.3%, 0.5 percentage points lower than expected. Officials remain cautious about providing forward guidance on this metric, as defence spending will be accounted for in the debt calculation regardless of whether the escape clause is activated.