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Italy is growing, deficit plans in revised budget, setting stage for EU production

BRUSSELS (Reuters) – Italy presented its draft budget for next year to the European Commission with the same assumptions of…

BRUSSELS (Reuters) – Italy presented its draft budget for next year to the European Commission with the same assumptions of growth and deficit as a proposal rejected last month to break the rules of the European Union, but with a falling debt the new draft showed .

Italy’s Minister for Economic Affairs Giovanni Tria looks forward to a joint press conference with Eurogroup President Mario Centeno at the Ministry of Finance in Rome, Italy, November 9, 201

8. REUTERS / Alessandro Bianchi

The falling debt forecast, which Italy wants to achieve using funds such as equivalent to 1 percent of GDP from privatization, is to address one of the Commission’s main problems with the previous draft – that public debt would not fall under EU rules.

However, the revised budget is still planning to raise its structural deficit, which excludes offs and cyclical fluctuations, by 0.8 percent of GDP next year, rather than reducing it by 0.6 percent of GDP as required by EU rules.

This, along with what the Commission sees as unrealistically high assumptions about growth, still put Rome in collision course with the Commission, which will give an opinion on the revised draft on November 21.

its privatization plan and undertakes to mitigate the surplus surplus, the Italian government did not change its deficit targets. This is likely to lead to the European Commission recommending an infringement procedure, “said Daniel Antonucci, economist for Morgan Stanley.

EU tax rules require that much indebted governments, such as Italy, should reduce their structural deficit and debt every year.

The European Commission, which enforces the rules, had the opportunity to initiate disciplinary action against Rome in order not to reduce its debt quickly enough in the previous draft.

But now Rome now sees its public debt to fall to 129.2 percent of GDP 2019, to 127.3 percent in 2020 and to 126.0 percent in 2021 from the 130.9 percent that Rome expects this year.

The Commission expected Italy’s debt to 131.1 percent of GDP this year and did not expect much change to that level until 2020.

OPTIMISTIC GROWTH SUMMARY

Italy maintained its assumptions of 1.5% economic growth in 2019, 1.6 percent in 2020 and 1.4 percent in 2021, although the Commission expects Italian growth next year to 1.2 percent and the International Monetary Fund is even less positive with a forecast of 1.0 percent. Market economists are also skeptical.

“We are more angry than the government’s forecast,” said Morgan Stanley Antonucci.

The Italian headline deficit for next year will remain 2.4 percent, up from 1.8 percent seen this year, to fund highlights of higher spending and tax cuts.

However, the Commission considers that slower than forecast growth and higher cost of debt will increase the gap to 2.9 percent in 2019 and to 3.1 percent in 2020.

“We expect a larger deficit of around 2, 5 percent of GDP for the next three years, together with weaker growth. Government debt is unlikely to fall over 2019-21, according to our opinion, says Antonucci. “The fiscal support for growth is likely to have some beneficial effects on consumption. But it is unlikely that it is so great that it results in an improvement in public finances. “

Reporting by Jan Strupczewski; Editing Jason Neely and Andrew Heavens

Our Standards: Thomson Reuters Trust Principles.

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