November 21, 2018 / 9:12 AM / 9 months ago

Italy's ISTAT cuts 2018 GDP forecast to 1.1 percent, sees 2019 at 1.3 percent with budget boost

ROME, (Reuters) - The Italian economy will grow by 1.1 percent this year and by 1.3 percent in 2019, national statistics bureau ISTAT said on Wednesday, cutting its outlook for 2018 from a 1.4 percent projection made in May.

The new forecasts are less upbeat than those of the new government of the anti-establishment 5-Star Movement and the right-wing League, which last month projected growth of 1.2 percent this year and 1.5 percent in 2019.

However, ISTAT said the government’s expansionary budget will help Italian growth next year by supporting domestic demand, while trade flows will provide no contribution to growth.

The government, which took office in June, is locked in a dispute with the European Commission, which has rejected the budget because it reverses a commitment to cut borrowing next year, made by the previous centre-left administration.

ISTAT said its latest estimates reflected weaker than expected growth so far this year and a slowdown in world trade.

Italy’s domestic demand next year “will be positively affected by some of the fiscal measures in the budget, such as those to combat poverty and to increase public investments,” ISTAT said in its twice-yearly forecasting note.

Italy posted zero growth in the third quarter compared with the previous three months, according to a preliminary estimate issued by ISTAT last month, the weakest result since the end of 2014.

This month the European Commission forecast Italian growth of 1.2 percent next year, while the International Monetary Fund was more downbeat, predicting just 1.0 percent.

ISTAT forecast that Italy’s unemployment rate would fall gradually to an average of 10.5 percent this year from 11.2 percent in 2017, and continue to decline next year to 10.2 percent.

Reporting by Gavin Jones

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