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Deputy Prime Minister and Labour Minister Luigi di Maio(L), Italian Prime Minister Giuseppe Conte(2L), Italian deputy Prime Minister and Interior Minister Matteo Salvini(2R) and Italian Economy and Finances Minister Giovanni Tria(R) hold a press conference on the Italian budget on October 15, 2018 in Rome, Italy.
Italy will struggle to achieve the growth rate that the anti-establishment government has planned for 2019, Morgan Stanley said in a note on Tuesday.
In its latest 2019 budget draft plan, Rome has forecast a growth rate of 1.5 percent in 2019 — a contrasting estimate to Morgan Stanley’s latest forecast of 0.5 percent of gross domestic product (GDP) for next year. The figure shows that the investment bank’s forecast is only one-third of the Italian government’s estimate.
“We expect a contraction in economic activity towards year-end, mainly driven by domestic demand, both consumer spending and business investment,” the investment bank said in its European Economic Outlook note.
“Further out, the fiscal boost to growth will probably have some beneficial effects on consumption. But it’s unlikely to be so big as to result in an improvement of the public finances,” the note added.
It is the opinion of the Italian government that increasing spending with infrastructure projects and providing people with more income will revive the subdued Italian economy.
Giovanni Tria, the Italian finance minister said in a letter to the European Commission earlier this month that “tackling the social problems caused by the negative trend in the economy is equally important and urgent.
The idea is to put forward a Citizenship Income, aimed at alleviating poverty and improving social inclusion. Such policy is set to cost 0.37 percent of the country’s total growth in 2019.
Morgan Stanley also noted that market conditions and a drop in exports will lead to lower growth rates in 2019.
“A further tightening in financial conditions and falling sentiment are both key risks.”
Italy’s 2019 budget plans have sparked market concerns for about three months now. The government wants to increase spending in 2019 in a way that both investors and European officials deem unsustainable to the country’s high debt pile.
Rome has about 130 percent of debt-to-GDP in its books, the second largest in the euro zone.
“In a triple whammy, weaker growth and rising financing costs can jointly stress the state coffers, weaken the banking system and produce a knock-on effect on the real economy,” the investment bank warned.
