IMF raises Italy growth forecast, but sees ongoing risk

BY  | FROM  | 2017-06-13 15:09

The International Monetary Fund (IMF) on Monday revised upwards its economic growth forecast for Italy, from 0.8 percent to 1.3 percent this year.

"Growth is projected at about 1.3 percent this year," the IMF wrote in statement at the close of its annual country review under Article IV of its terms of agreement with countries wishing to borrow from it.

The Italian economy is in the third year of "a moderate recovery" helped by government reform efforts, expansionary monetary policies, and low oil prices, according to the IMF.

The Washington DC-based institution noted that unemployment and non-performing loans (NPLs) held by Italy's banks have "declined somewhat from their crisis-driven peaks".

According to the Bank of Italy, NPLs tripled since the onset of the global financial crisis in 2008 to 18 percent of total loans held by the country's bank in 2015.

The IMF also noted that Italy remains beset by "weak productivity and low aggregate investment" and economic expansion is being "held back by structural weaknesses, high public debt, and impaired bank balance sheets."

"A decade after the global financial crisis, real disposable incomes per capita remain below pre-euro accession levels, while the burden of the crisis has fallen disproportionately on younger generations," the IMF staff wrote in their preliminary findings.

Italy's jobless rate stood at 11.7 percent in the first quarter, compared to 9.5 percent in the Eurozone, while gross domestic product (GDP) grew by 1.2 percent year-on-year (compared to 1.7 percent in the Eurozone), according to the latest data from Italy's official statistics bureau (ISTAT).

The government deficit-to-GDP ratio decreased from 2.7 percent in 2015 to 2.4 percent in 2016, and public debt stood at 132.6 percent of GDP at the end of 2016, up by 0.5 percentage points with respect to the end of 2015, ISTAT said.

The IMF said Italy's government needs to keep up the reform effort because "downside risks are significant".

It cited "political uncertainties (and) possible setbacks to the reform process" ahead of the next national election, whose date remains unclear as Italy's main political forces have yet to agree on a new electoral law.

The IMF's views echoed those of the Bank of Italy, which said in its 2016 annual report that "GDP is still 7 percentage points below pre-crisis levels, with a larger gap for the south (while) economic activity remains far short of its potential."

The IMF findings are more optimistic than those of Standard & Poor's ratings agency, which said in a May report that Italy's economy will likely achieve less than 1 percent growth this year due to the country's struggling banking sector and divided politics.

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