Italy reaffirms budget goals ahead of new economic forecasts

The cabinet is scheduled to meet on Tuesday to approve the Treasury's Economic and Financial Document (DEF) with updated GDP and public finance estimates. Uncertainty remains over the take-up of costly home renovation incentives, which opened a huge hole in state accounts in 2022 and 2023 and topped 210 million euros ($217 million).

Italy is ready to take action if it overshoots its budget goals but does not see the need at the moment, Economy Minister Giancarlo Giorgetti said on Monday, ahead of a new set of government economic projections expected this week. "If there is something to correct we will correct it, but basically we are in line," he said on the sidelines of an event in Trieste, northeast Italy.

Italy last September took steps to reduce its deficit-to-GDP ratio, which is seen falling from a forecast 4.3% this year to 3.6% in 2025 before returning to below the European Union 3% ceiling in 2026. The cabinet is scheduled to meet on Tuesday to approve the Treasury's Economic and Financial Document (DEF) with updated GDP and public finance estimates.

Uncertainty remains over the take-up of costly home renovation incentives, which opened a huge hole in state accounts in 2022 and 2023 and topped 210 million euros ($217 million). These incentives lay behind last year's deficit-to-GDP ratio of 7.2% which far overshot the government's target of 5.3%, and threatens to put Italy's huge public debt on an upward path towards 140% of GDP from the 137.3% reported in 2023.

Officials have previously said the deficit was expected to stand at around 4.4% of GDP this year and then fall to just below 4% in 2025, not much higher than the targets. However, Giorgetti underscored that the government was committed to meet "exactly" the multiyear targets announced in late 2022.

"Our policy is guided by prudence and responsibility," he said. Italy will soon hold talks with European Union authorities over a fiscal adjustment path it will need to follow to comply with the latest reform of the bloc's two-decade-old fiscal rules, which sets a slow but steady pace of deficit and debt reduction from 2025 over four to seven years.

Given the transitional period between old and new rules, Rome could announce on Tuesday a set of estimates merely reflecting the current economic and fiscal trend, without setting new goals. Another option being discussed is for the targets to replicate forecasts based on an unchanged policy scenario, a separate official said on Monday.

Barring last minute surprises, the Treasury's DEF will cut this year's GDP growth forecast to 1% from a previous 1.2% given in September. For 2025, Rome now expects growth of 1.2%, down from 1.4%.

Both forecasts are above those of the European Commission, the International Monetary Fund and Italy's central bank, which all see Italian growth below 1% in each of the two years.

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