FLORENCE, Italy (Reuters) - Prime Minister Giuseppe Conte said on Tuesday the International Monetary Fund’s forecasts for the Italian economy should be revised in light of the government’s 2019 budget proposals.
“The (IMF) forecasts should be updated in respect of our budget plan. We have shown (the figures) ... and the deficit/GDP ratio in the third year will fall under 2 percent ... the same works for debt/GDP, which we will contain, and will fall,” Conte said.
In the World Economic Outlook published on Tuesday, the IMF forecast Italian GDP growth would fall to 1 percent in 2019 from 1.5 percent this year, with the deficit/GDP ration stabilising at 1.7 percent.
The IMF said that the slowdown in Italian growth was due to the “deep deterioration of foreign and domestic demand, combined with the political uncertainty on the agenda of the new government”.
Italy’s populist coalition government, made up of the anti-establishment 5-Star Movement and the right-wing League party, is targeting GDP growth of 1.5 percent, using tax cuts and welfare spending that would increase the deficit to 2.4 percent next year.
The budget plans run counter to what the European Union asked Italy to do in July, but Rome insisted on Tuesday it would “not retreat” from its spending plans.
Italian 30-year bond yields rose above 4 percent for the first time since August 2014 on Tuesday on market concern deficit spending could notch up Italian debt, the world’s third biggest.
A further drop in government bond prices could hurt banks’ ability to offer credit, with possible spillover effects on other European countries, the IMF said.
The Fund listed Italy, along with France and Spain, among the eurozone countries with limited budget margins.
Italy should take advantage of the economic recovery to build up financial buffers instead of increasing the deficit, the IMF said.
The IMF also called on the government to maintain previous labour and pension reforms.
Rome is planning to lower the retirement age and make it more difficult for companies to hire people temporarily.
Reporting by Silvia Ognibene and Elvira Pollina, writing by Giulia Segreti and Giselda Vagnoni; editing by Steve Scherer, Larry King