April 19, 2018 / 3:31 PM / a year ago

New Italy forecasts to raise 2018 GDP growth to 1.6 percent - government sources

ROME (Reuters) - Italy will slightly raise its forecast for economic growth this year to 1.6 percent from 1.5 percent when the Treasury issues new projections next week, government sources have told Reuters.

The forecast for 2019, on the other hand, will be lowered to 1.4 percent from 1.5 percent currently, the sources said, due to the negative effect on the economy of planned increases in sales tax.

The increase in this year’s forecast may surprise economists, as most recent data has pointed to a slowdown.

Industrial output posted monthly drops in January and February, the first back-to-back declines since the middle of 2016, and purchasing managers’ indexes for the manufacturing and services sectors also declined in February and March.

The Bank of Italy forecast last week that gross domestic product rose just 0.2 percent in the first quarter, which would be the smallest increase since the third quarter of 2016.

The Economic and Financial Document (DEF) will be issued next week by the outgoing government led by the Democratic Party (PD), which fared badly at last month’s parliamentary elections.

The PD has said it will go into opposition and the Treasury has announced it will not update its public finance targets in the DEF, so that these can be drafted by the new government once a coalition deal has been hammered out.

The European Commission has warned Italy its 2018 budget, approved at the end of last year, does not cut the fiscal deficit enough, and has asked for additional belt-tightening measures worth some 3.4 billion euros (2.96 billion pounds).

It will be up to the new government to either adopt these measures or to set up a potential clash with Brussels.

Reporting by Giuseppe Fonte and Luca Trogni, writing by Gavin Jones

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