EU lowers Italy's growth forecast for 2012 on declining demand
Saturday, 25 February 2012 | 00:00
The European Union revised down its forecast for Italy's growth as austerity measures passed by Prime Minister Mario Monti's government weigh on the nation's gross domestic product.
The euro region's third-biggest economy will contract 1.3 per cent this year, the Brussels-based European Commission said in a report.
In November, the commission had forecast that Italy's gross domestic product (GDP) would fall 0.1 per cent.
Still, the commission is more optimistic than the International Monetary Fund, which last month said it expects Italy's economy to contract 2.2 per cent.
Italy's central bank estimated on January 17 that GDP will fall 1.2 per cent to 1.5 per cent, depending on the cost of refinancing the nation's €1.9 trillion (Dh9.28 trillion) debt.
"Private consumption is set to fall in 2012" as a result of a drop in household income "under the impact of declining employment and the large fiscal consolidation measures," the commission said.
Still, the economy will stabilise in the second half of the year provided financial-market turmoil doesn't return and the yield difference between Italian and German 10-year bonds stays near 370 basis points, according to the report. Italy entered its fourth recession since 2001 in the last quarter of 2011, Rome-based National Statistics Institute Istat said on February 15.
In December, Monti pushed through €20 billion in austerity measures and the European Central Bank loaned banks unlimited funds for three years, prompting a fall in Italian bond yields that suggests improved confidence in the country's ability to repay its debts.
The spread between Italian and German 10-year bonds was at 364 basis points in late morning Rome time, down from a euro-era record of 552 basis points on November 9.
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