Italy, facing structural challenges - Budget deficit and low growth threaten economic stability
Italy has long been under the scrutiny of the European Commission, which is demanding that Rome take action on its huge budget deficit. Structural problems in Italy's economy are re-emerging, threatening growth and public finances. The Italian statistics agency, ISTAT, predicts that growth for 2024 will be only 0.5% instead of the 1% that is the government's official target.
If ISTAT's assessment is confirmed, Italy will once again be among the eurozone's worst-performing economies, dealing a blow to Prime Minister Giorgia Meloni's efforts, Reuters reported.
Such structural weaknesses include underinvestment in education, infrastructure and public services, a large bureaucracy, risk-averse banks, an underdeveloped stock market, and an inefficient justice system. All these weaknesses have remained unaddressed for many years.
Also, special attention is paid to the public debt, which is the second largest in the eurozone as a percentage of GDP after that of Greece. This is expected to increase to around 138% of Gross Domestic Product in 2026 from 135% last year.
If growth for 2025 falls far short of the 1.2% target currently set by the Italian government, which many economists now predict will happen, then this debt as a percentage of economic activity is expected to rise even further. In such a case, investors may become more reluctant to buy Italian government bonds, whose yields are already hovering around 3.42%, according to Bloomberg data.
At the same time, the European Commission requests that Rome take measures for the large budget deficit, as a result of which the Italian government does not have the opportunity to stimulate growth with new expenses.
Additionally, business confidence is at its lowest level since 2021 and industries are facing significant challenges. Also, the services sector, which had boosted the economy this year, has now started to shrink.
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