Italy’s government is falling short on needed reforms while annual economic growth is projected to stay below 1 percent through 2023, the IMF said.
The Washington-based fund issued a report on the 2018 review of Italy less than a week after the national statistics office said the country fell into recession at the end of last year.
“The authorities’ strategy falls short of comprehensive reforms needed to address the longstanding structural impediments to sustained growth and, therefore, risks leaving the economy vulnerable,” the IMF said on Wednesday at the end of its consultations.
The populist government that took office on June 1 is implementing an expansive spending program that includes income support for the poor and a lower retirement age.
Italian Finance Minister Giovanni Tria said the IMF report “underestimates the necessity to support growth in Italy and in Europe, and the role of the policies adopted by the government toward this goal.”
Tria said in a statement on Wednesday evening that the government is committed to reducing the debt and there is no cause for alarmism and “no intention to destabilize the markets.”
The ruling coalition expects 1 percent growth this year, while the country’s central bank and the IMF in separate reports have estimated 0.6 percent. The European Commission could slash its own forecast to 0.2 percent, news agency Ansa reported from Brussels.
Lower growth will make it more difficult to reach the budget deficit target agreed to with the Commission for this year.
Growth is projected to stay below 1 percent annually for five years, ending 2023 at 0.6 percent, the IMF said, adding that the economy has been “recovering modestly” from the financial and sovereign debt crises.
Italy approved a compromise budget in late December following weeks of wrangling with the European Commission that spooked investors and sent yields on 10-year government bonds soaring to 3.81 percent on Oct. 19. They have since fallen to about 2.8 percent from the four-and-a-half-year high.
“Weak profitability and sustained high sovereign yields pose challenges to the banking system,” according to the IMF’s report.
The fund welcomed the government’s goal of reducing Italy’s public debt, which at more than 130 percent of GDP is the second-highest ratio in the euro area after Greece.
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