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Monetary Fund: Rejection of Budget Law and Criticisms of the Italian Government

The International Monetary Fund has recently expressed strong criticisms of the Italian budget law, highlighting the absence of measures for economic growth. During the presentation of new economic forecasts for Europe, the director of the IMF’s European Department, Alfred Kammer, provided a blunt assessment of the document.

Lack of Ambition and Structural Reforms

According to Kammer, the Italian government has been advised to anticipate budget adjustments and adopt a more ambitious perspective. The IMF emphasized the need for structural reforms and growth-favoring measures, elements that, Kammer says, are absent in the draft budget for 2024.

Growth Estimates and IMF Concerns

The Monetary Fund confirmed Italy’s growth estimates for 2023 and 2024, predicting a modest increase in GDP of 0.7% for both years. However, it emphasized the need to address challenges related to the implementation of the Next Generation EU and stressed the importance of a growth-friendly fiscal policy.

Economic Growth Slowdown in Europe

The IMF anticipates a slowdown in economic growth in Europe, moving from 2.7% in 2022 to 1.3% in 2023, with a slight improvement to 1.5% in 2024. It emphasizes the need to restore price stability after managing challenges related to the pandemic and energy price shocks caused by the war in Ukraine.

Criticisms of Consumption and Doubts about Economic Recovery

The IMF highlighted the decline in Italian consumption in the third quarter of the year, with a 0.6% decrease compared to August. According to Istat, over the course of a year, goods consumption has contracted by 4.4%. Nevertheless, the Italian government aims for a GDP increase of 0.8% in 2023 and 1.2% in 2024, driven by a presumed consumption recovery.

Pressure on the Government and Future Prospects

The Italian government is now under pressure to anticipate budget adjustments and implement structural reforms that promote economic growth. The upcoming assessments by rating agencies could have a significant impact on markets and investor perceptions of Italy’s financial stability.

Rating at Risk and Prospects for Italian Debt

The IMF’s criticisms come as Fitch’s judgment on Italian debt is awaited on November 10. While few in financial and political circles believe in a downgrade by Fitch, concerns rise in anticipation of Moody’s examination on November 17. In spring, the agency had highlighted the concrete risk of downgrading Italy, potentially causing severe consequences for markets.

The IMF emphasized the lack of evident progress from Italy, with public debt hovering around 140% of GDP until 2025. The Fund’s assessment highlights that the maneuver primarily focuses on bonuses and incentives, with a negligible impact on GDP. The rating of Italian debt is thus at risk, and Italy could lose the “investment grade” rating with potentially severe consequences for financial markets.

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