EU to forecast Italy deficit below 3 percent limit - newspaper

ROME Thu Feb 21, 2013 11:31am GMT

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ROME (Reuters) - The European Commission will forecast Italy's deficit to fall below the EU's maximum threshold of 3 percent of gross domestic product as long as the next government sticks to a tight budget, business daily Il Sole 24 Ore said on Thursday.

Austerity-weary Italians vote this weekend for the successors of a technocrat government led by economist Mario Monti, which passed a series of strict budgets to pull Italy from the brink of a Greek-style financial meltdown through 2012.

A day before the official release, the newspaper cited figures "in circulation in Brussels", showing the commission's 2013 winter forecast will put Italy's deficit at 2.9 percent of GDP in 2012 and 2 percent in the two subsequent years, down from 3.9 percent in 2011.

But the deficit would remain below the limit only "as long as the measures decided in 2011-2012 by the government are fully adopted," the newspaper said. EU member countries are supposed to keep their deficits below a ceiling of 3 percent of GDP.

The government is forecasting a balanced budget in structural or growth-adjusted terms in 2013 after a year of painful tax hikes and spending cuts. But the longest recession in 20 years is expected to leave Rome facing a deficit in unadjusted terms.

Final polls published before a pre-election blackout indicate likely election winners the centre-left may not have a commanding majority, which would make further reforms harder to push through.

The figures, which could boost Monti days before a parliamentary election in which he is leading a centrist coalition, caused "fiery debate" in the commission because of their potential political impact, the newspaper said.

The forecasts, which Il Sole said could be subject to revision, see Italy's economy shrinking 2.1 percent in 2012 and 0.8 percent in 2013, before returning to slight growth of 0.8 in 2014.

However, the report said unemployment would continue to rise, from 10.6 percent in 2012 to 11.6 percent in 2013 and 11.9 percent in 2014.

The EU forecast is more optimistic than those of the Bank of Italy, which sees a 1 percent fall in GDP in 2013 and growth of 0.7 the following year, but are more pessimistic than the outlook of Italy's treasury, which sees growth above 1 percent from 2014.

(Reporting by Naomi O'Leary; Editing by Hugh Lawson)

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