By Giuseppe Fonte, Gavin Jones and Valentina Consiglio
ROME, April 22 (Reuters) – Italy posted a budget deficit of 3.1% of gross domestic product last year, statistics bureau ISTAT said on Wednesday, confirming previous data and dashing Rome’s hopes of exiting an EU disciplinary procedure for its “excessive” deficit.
The deficit figure, contained in ISTAT’s official notification to the European Commission, is lower than the 3.4% deficit-to-GDP reading in 2024 but just above the European Union’s 3% ceiling.
This means Italy will remain this year under the EU excessive deficit procedure, limiting Prime Minister Giorgia Meloni’s spending leeway ahead of an election scheduled in 2027.
Rome is also set to cut its economic growth forecasts later on Wednesday to factor in the negative impact of the U.S.-Israeli war against Iran, which is driving up energy costs.
Meloni’s government is expected to reduce its estimate for this year’s gross domestic product growth to around 0.5% or 0.6% from a current 0.7% target, and lower next year’s outlook to 0.6% or 0.7% from 0.8%, officials said.
The euro zone’s third-largest economy rebounded strongly from the COVID-19 pandemic, helped by costly state-funded building incentives, but has since resumed its customary place among the euro zone’s most sluggish performers.
DEBT CLIMBING
Even assuming the government’s forecasts are achieved, Italy will post five consecutive years of sub-1% growth from 2023-2027, despite a constant flow of billions of euros from the EU’s pandemic recovery funds.
The economic weakness weighs on public finances. The International Monetary Fund forecast last week that Italy will overtake Greece this year to post the euro zone’s highest debt-to-GDP ratio, respectively seen at 138.4% and 136.9%.
The cabinet will meet at 1000 GMT to discuss and approve the Document of Public Finance (DFP), which will update multi-year estimates for the deficit, debt and GDP growth.
These estimates will be projections under un unchanged policy scenario, rather than official targets, which the government says cannot be made due to the intense geopolitical uncertainty triggered by the U.S.-Israeli war against Iran.
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EXCESSIVE DEFICIT
Italy sees the budget deficit at around 2.8% of GDP in 2026 and at around 2.6% in 2027, in line with the targets set last autumn.
Despite the deficit reduction path, as a result of the 3.1% deficit in 2025 Italy will not exit the EU Excessive Deficit Procedure (EDP) before mid-2027, provided Brussels is convinced the improvement in its accounts is permanent.
An earlier exit from the EDP would have meant that, should the EU decide to ease budget rules at a later stage to help member states cope with the energy crisis, Italy could have used the additional leeway without facing new disciplinary steps.
The EU has repeatedly ruled out activating a so-called “general escape clause” from its budget rules that helped member states respond to the COVID-19 pandemic between 2020 and 2023.
In view of this, Italy has signalled it may resort to a “national escape clause” allowing member states to negotiate with Brussels higher deficit targets in response to exceptional external circumstances, or to boost its defence spending.
(Editing by Alvise Armellini)
