MILAN (Reuters) - Bank of Italy Governor Ignazio Visco warned on Saturday of downside risks to the central bank’s forecast for economic growth in 2019 after the country slipped into a recession in the fourth quarter of last year.
Italy’s gross domestic product (GDP) contracted for a second consecutive quarter at the end of 2018, throwing the country into a “technical” recession, its third in a decade, and raising speculation that Rome may need further budget measures for this year.
The Bank of Italy’s latest growth projection for 0.6 percent GDP growth this year, published in January, is “in line with those of the leading national and international forecasters, but with significant risks on the downside,” governor Ignazio Visco told the Assiom-Forex banking conference.
The Italian anti-establishment government, which took office in June last year, was quick to blame its center-left predecessors for the latest GDP slump.
Deputy Prime Minister Luigi Di Maio said the data “certified the failure of the entire political class which Italians sent packing” at last year’s election.
Italian government currently targets a GDP growth of 1 percent this year.
Economy Minister Giovanni Tria said last month in Davos, before latest GDP data were released, that Italy will meet its key budget deficit target for this year and there is no need for any corrective measures.
Industry lobby Confindustria, however, said on Friday Italy’s economic growth will be “slightly above zero” in 2019.
Visco said domestic demand was affected by greater uncertainty “initially linked to doubts about the country’s stance on participation in the single currency and then to the difficult passage of the budget law, marked by clashes with the European Commission”.
Italy agreed in late December to cut its deficit target for this year to 2.04 percent of GDP, avoiding disciplinary steps from Brussels.
Turning to fiscal policy, Visco said that despite Rome reached an agreement with the European Commission over 2019 budget, “numerous questions remain open” over 2020 and 2021.
“The uncertainty surrounding fiscal policy has not disappeared” he told the Assiom-Forex conference on Saturday.
Bank of Italy governor said that if so-called “safeguard clauses” were to be deactivated “without any countermeasures in place”, Italy’s deficit would stand around 3 percent of GDP both in 2020 and 2021.
To meet its deficit targets in 2020 and 2021, Rome pledged to raise value-added tax (VAT) or find other means. If the alternative measures are not found, VAT revenue must be increased by 23.1 billion euros in 2020 and 28.8 billion in 2021.
Deputy PM Di Maio said last year that VAT would not be increased in 2019, “nor in the following years”.
Reporting by Giselda Vagnoni, writing by Giulio Piovaccari, editing by Louise Heavens