No alarm over slowdown in Italy’s growth

Date: 12/11/1998

By Tim Jones

EUROPEAN Commission economists are confident that the Italian government will obey euro-zone rules on budget discipline despite the recently detected slowdown in the country's economic growth.

The Commission is sticking to its October prediction that the Italian budget deficit will narrow to 2.6% this year; 0.4 of a percentage point under the ceiling established by the growth and stability pact.

Rome's announcement last week that a deceleration of consumption and investment spending would cause the government to undershoot its 1.8% growth target for gross domestic product has done nothing to shake the institution's conviction. "The Commission had already factored in a weaker growth rate than the government target," said one official.

In their autumn forecasts, Commission analysts predicted Italian growth would be only 1.7% this year, speeding up to 2.1% in 1999. But this is still too optimistic for Giorgio Fossa, head of employers' federation Confindustria, who expects growth to be as low as 1.5% this year and 2.0% next.

The Commission's optimism is based in part on the belief, shared by the Group of Seven leading industrialised nations, that the worst of the emerging markets crisis appears to be over.

Analysts also argue that the fact that Italy appears to have a strengthened governing coalition under Prime Minister Massimo d'Alema should add to market confidence and make any further necessary budget cut-backs feasible.

But the government's target of a 2.0%-of-GDP deficit next year is still thought to be a little over-optimistic, unless much of the windfall from lower interest payments is used to pay off debt.