Italy upgrades economic forecasts

Italy upgraded its economic forecasts for the next three years on Tuesday and now expects to grow by 0.7 per cent in 2015 - a notch up from its earlier projections of 0.6 per cent growth - reflecting growing confidence of an exit from three years of bruising recession.

"The international economy is doing better than expected a few months ago," said Pier Carlo Padoan, Italian finance minister, at a press conference with reporters, flanked by prime minister Matteo Renzi. "The Italian economy is better than believed a few months ago both for outside reasons and on its own merits," Mr Padoan added.

As well as raising its estimate for economic growth this year, the Italian government also lifted its forecast for 2016 to growth of 1.4 per cent from 1 per cent in its autumn projection. The outlook for 2017 is better too: up from growth of 1.3 per cent in the autumn forecast to 1.5 per cent now.

Last year Mr Renzi's government was expecting that Italy would finally emerge from the lengthy recession that has afflicted it since the end of the financial crisis and eurozone sovereign debt crisis. But that rebound failed to materialise. Yet this year, there is more optimism that the forecasts are correct, because of the lower price of oil - which helps consumption - and the launch of quantitative easing by the European Central Bank, which has lowered the value of euro, benefiting exporters, and is keeping borrowing costs down.

A return to growth in Italy would be particularly welcome given its heavy debt load - which it has been struggling to reduce. The new economic projections assume that Italy's debt-to-GDP ratio will drop from 132.5 per cent this year to 123.4 per cent in 2018. Meanwhile, Italy's budget deficit will fall from 2.6 per cent of GDP this year to 0.8 per cent in 2017 - reaching balance in 2018. Italy's structural deficit - which takes into account changes in the economic cycle and is closely watched by the European Union - is due to reach 0.5 per cent of GDP this year, falling to 0.4 per cent in 2016 and zero, or so-called structural balance, in 2017.

If the improved economic and fiscal outlook is validated by data over the coming months, it will give Mr Renzi more room to pursue expansionary fiscal policy, such as new tax cuts or spending increases. But for now, the Italian prime minister has only said that there would be no new tax increases, drawing criticism from members of his own Democratic party.

"The government has confirmed that our public finance policy is recessionary and unequal," said Stefano Fassina, a dissident Democratic party lawmaker. "This scenario implies that our economy and unemployment we will be floating without improvement." Meanwhile, some mayors are also up in arms as the government press ahead with €10bn in spending cuts planned to hit municipal authorities.

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