Italy’s growing uncertainty over its economic outlook for 2024 as the government’s ambitious growth target gets further away. Italy’s Economy Minister Giancarlo Giorgetti conceded on Sunday that headwinds had increased the chances that the 1 per cent GDP growth target for this year would be missed. This comes after national statistics bureau ISTAT made recent downward revisions to estimates of both 2022 and the first half of 2023.
The Italian economy has stepped into more difficult terrain, both at home and abroad, bolstered by resilience in the face of the COVID-19 pandemic and 2021’s energy shocks. The feasibility of the government’s projections has come under question because of ISTAT’s revisions which have painted a less optimistic picture of the country’s economic performance. It lowered its 2022 growth estimate to 3.4 per cent from 3.7 per cent, and made similar downward adjustments for the first two quarters of 2023.
However, these revisions have brought a shadow over Italy’s economic path so far, as Giorgetti conceded that the government’s announced goal of 1 per cent growth for 2024 is “more difficult” to achieve. The Italian minister’s remarks underline the understanding that the Italian economy is facing many challenges, from persistent inflation to tightening financial conditions to a global slowdown.
In some respects, Italy has moved a bit in the right direction. Harmonised inflation has dropped down to 0.9 percent year on year in June 2024, falling at the same time as the country’s inflation rate. The drop (or fall) on energy prices alone have thus been driving this disinflation, with core inflation flat at 2.1%. While the inflation rates on the consumption basket are not that high, say above 2 percent, remains significant especially in food and services sectors.
The Italian economy and authorities are walking a tightrope. As the national central bank, the Bank of Italy has been already actively supporting the digital evolution of the financial market. About a week ago, the central bank held a webinar in which it discussed ways that central banks can support the digital transformation of financial systems, and in which it emphasised Italy’s conviction that electronic segments of the financial system can be fostered using technology.
In addition, Italy’s involvement in the European Central Bank’s exploratory work on new technological capabilities for wholesale central bank money settlement exemplifies Italy’s contribution to innovative financial solutions. Because of its relevance to the Eurosystem and the Bank of Italy (in its dual capacity of central bank and financial regulator), this initiative is particularly timely.
The economic problems facing Italy will only add to the pressure on the government to carry out structural reforms and raise productivity. Previously, the International Monetary Fund has identified Italy among the least prepared advanced economies to cope with the impact of artificial intelligence, and required to undertake general reforms in education, labour markets and the business environment.
In looking ahead, Italy’s economic performance will attract a lot of domestic and international eyeballs. How well the government is able to ride the current economic headwinds and carry out the right policy should play a significant role in whether the country can pick up growth momentum and hit its targets for 2024 and subsequent years.
