IMF: risks from inflation, political uncertainty and low productivity for Italy
The International Monetary Fund “praises the effective response of the Italian authorities to the pandemic” which has led to “a solid and complete recovery”. The IMF delegation writes this in the annual report on our country, underlining “however, the new great challenges” that await Italy: one goes “from the high energy prices linked to the Russian invasion of Ukraine, tightening financial conditions, disruptions in the global supply chain and political uncertainty“, all factors that” have significantly clouded the economic outlook. “” Along with the weak productivity “, a ‘historic’ phenomenon, all these factors highlight the risks” associated with the high Italian public debt“. In 2022 the deficit will be at 5.6%, the public debt at 147.7%.
In the annual report on Italy, the IMF stresses “the need for continuous and decisive improvements in budget balances, starting this year” and invites the authorities “to save part of the additional revenue” linked to the recovery and inflationAnd. It is an invitation not to waste the ‘treasure’ that is flowing into the public accounts the one coming from Washingtonwhere our government is praised for “preventive efforts to strengthen security energy supply “ but at the same time, the subsidies paid to compensate for the increase in energy prices are called upon to keep “temporary and targeted”.
The Fund then indicates other interventions such as the rationalization of current expenditure, the expansion of the tax base, the strengthening of tax compliance and the implementation of reforms aimed at promoting growth, including those of the public administration, civil justice and competition. Interventions that – it is explained – “are needed to achieve and maintain a sizeable primary surplus“which serves to maintain the debt public on a decidedly declining path.
GDP up 3% in 2022, down in 2023
The growth of the Italian economy “is expected to slow drastically and remain weak” due to various factors, from the war in Ukraine to the tightening of monetary policy, from problems in the global supply chain to higher and persistent inflation than expected. The IMF reiterates the estimates made recently in the World Economic Outlook with a growth of 3% in 2022 and a sharp slowdown to 0.75% next year. Average annual inflation is expected to peak in 2022 at 6.75% and gradually decline thereafter. The Fund estimates that in subsequent years, with falling energy prices, Italy should experience a recovery in growthreinforced by public investment expenditure under the National Plan of recovery And resilience.
Systemic risks of economic crisis
However, the delegation warned IMF, there is a “high uncertainty” on the base estimates with downside risks that “could concretely affect the outlook, complicating the task of reducing public debt”. The risk factors are a further surge in energy prices and a rapid tightening of financial conditions that “could squeeze growth and weigh on fiscal consolidation efforts”. Focus then on the need to “carry out the investments and reforms of the NRRP” because of any delays “would reduce the support to demand, would weaken long-term productivity improvements and delay EU funding “. In addition to the danger of inflation, the Fund points out that “a complete suspension of Russian energy imports in the coming months could significantly reduce” the GDP figure in 2022 and 2023 compared to current estimates.
“The bond yields of Italian state have increased and spreads have increased on the prospect of tightening of monetary policies and political uncertainty in a weaker global context. “This was stated by the Monetary Fund International in the periodic report on Italy noting that “strengthening the growth trend is essential to strengthen public finances” and keep the high level of public debt under control
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