Italy relies on GDP revisions to limit 2023 deficit rise -sources

By Giuseppe Fonte and Gavin Jones

ROME (Reuters) – Italy hopes upcoming revisions to GDP growth data for 2020-22 will limit what could otherwise be a strong overshoot of its budget deficit target this year, two sources familiar with the matter told Reuters.

National statistics bureau ISTAT will unveil the gross domestic product (GDP) revisions on Sept. 22 and the Treasury expects higher figures that will have a positive carry-over effect on this year’s finances, the sources said.

In April, Prime Minister Giorgia Meloni set a deficit goal of 4.5% of GDP in 2023 and 3.7% in 2024, but the targets for both years are now threatened by adjustments related to billions of euros in fiscal incentives for home improvements.

Introduced in 2020 and extended under Meloni’s predecessor Mario Draghi, these incentives already led to a overshoot in the last three years’ deficits following a ruling on the tax credits by the European Union’s statistics agency Eurostat. The 2022 fiscal gap was 8.0% of GDP, versus the official target of 5.6%.

Eurostat is due to shortly make another pronouncement on the building incentives issue, which sources said would push this year’s Italian deficit above the 4.5% goal in the same way as in the last few years, though the size of the adjustment has still not been finalised.

As a result, Italy’s deficit looks like it will remain as high or higher than those of its main euro zone partners, something Rome can ill afford given its huge public debt.

Germany’s deficit-to-GDP ratio came in at just 2.6% last year and is forecast by the government at 2.5% this year, while France and Spain forecast their 2023 deficit at 4.9% and 3.8% respectively.

However, ISTAT last week announced an upward revision of between 1.8 and 2.1% for 2021 GDP expressed in nominal terms, and the sources said Rome was confident there would also be a significant hike to real (inflation-adjusted) growth for the last two years, with positive implications for 2023.

The Spanish statistics institute on Monday revised the 2022 GDP growth rate to 5.8% from 5.5%, with Madrid saying this would mean its debt-to-GDP ratio should end this year below the government’s latest forecast of 111.9%.

Italy’s public finance problems are not only connected to the green building incentives. A recent slew of weak data has cast a shadow over its near-term growth prospects, hurting tax revenues and raising the deficit as a proportion of GDP.

Economy Minister Giancarlo Giorgetti has said the current 1% growth target for this year can still be reached, but a third source told Reuters the 1.5% forecast in 2024 is likely to be cut to 1.1% or 1.2%.

Italy will unveil its new economic projections by Sept. 27 in the Treasury’s annual Economic and Financial Document (DEF).

(Additional reporting by Leigh Thomas, Maria Martinez and Belen Carreno, editing by Mark Heinrich)