by Gavin Jones

ROME (Reuters) – Italy’s budget deficit was much higher than the government’s target last year, but the country’s colossal public debt was still reduced, partly thanks to high inflation and stronger-than-expected economic growth, according to data released Friday.

The gross domestic product (GDP) of the euro zone’s third-largest economy grew by 0.9%, statistics body ISTAT said, slightly higher than the latest forecast of 0.8% growth proposed by Giorgia’s government. Meloni, but in a clear slowdown compared to the 4% (revised) reached in 2022.

The budget deficit stood at 7.2% of GDP, compared to 8.6% (revised) in 2022, but it remains well above the government’s target for its second consecutive year. The government was targeting a ratio of 5.3% in 2023.

The debt-to-GDP ratio, the second highest in the euro zone in proportion, has however declined thanks to high inflation which has supported nominal GDP.

Public debt fell to 137.3% of GDP in 2023, from 140.5% the previous year, according to ISTAT. This is almost three percentage points below the government’s target of 140.2%.

Giorgia Meloni announced that she expects a deficit of 4.3% of GDP this year, but this objective could be undermined by a change in the way in which incentives for energy renovation are counted by Eurostat.

These incentives, known as Superbonuses, revived a struggling construction sector and helped fuel a rebound in growth after the COVID-19 pandemic, but they were costly.

They were adopted before the current government came to power, and the Minister of Economy, Giancarlo Giorgetti, did not hesitate to blame them for last year’s large deficit.

“The irresponsible Superbonus period has had a significant impact in 2023,” he said in a statement.

Last year’s growth was driven by domestic demand, according to ISTAT data, with investment, consumer spending and government spending all rising significantly from the previous year.

Trade flows also contributed modestly to activity, while a reduction in inventories had a negative impact of 1.3 percentage points on growth.

This year, the Treasury is targeting growth of 1.2%, a figure considered unrealistic by observers, who instead expect an increase in GDP of around 0.7%.

The economy grew by 0.2% in the fourth quarter of 2023 compared to the previous three months, after increasing by 0.1% between July and September.

(Editor Gavin Jones, Corentin Chappron, edited by Kate Entringer)

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