- Sovereign Debt
Italy is sinking a little deeper into the crisis!
With zero growth and possibly even a recession this year, as well as rising unemployment, Italy's economic situation is becoming increasingly gloomy, adding to the pressure on the ruling populist coalition. “We are facing a general slowdown throughout Europe and Italy: in 2019, we are heading for zero [growth],” acknowledged the Italian Minister of Economy, Giovanni Tria, last Sunday. This was a climbdown from what he said a few days earlier, that the third economy of the Eurozone would reach a growth of 1% in 2019, despite all the declining forecasts made by international institutions.
Italy entered a recession in the second half of 2018, with a 0.1% decline in Gross Domestic Product (GDP) in both the third and fourth quarters. The peninsula, which had already experienced a hard recession in 2012-2013, is the only country in the Euro zone in such a situation. To make matters worse, the unemployment rate rose again in February to 10.7%.
Although part of the Italian slowdown is de facto a result of the German slowdown, the expansionary fiscal policy measures will have to be revised as Italy cannot afford to increase its debt burden. Debt now stands at 132.1% of GDP, a historical record. The showdown with Brussels over the Italian deficit is expected to resurface in the coming weeks. In addition to the legitimacy of the current coalition, Italian creditworthiness could be impacted by future negotiations.
Julien Moussavi, Head of Economic Research
Sources: Beyond Ratings