IMF promotes Italy: good employment and deficit cuts

Employment that is growing and constantly updating record levels in the national time series and the drastic reduction of the deficit achieved through fiscal discipline in recent years build a crucial embankment against the risks generated by an international scenario that does not spare unknowns in terms of trade policies and geopolitical tensions.

This was written by International Monetary Fund analysts in their annual report on the Italian economy and public finance (Article IV). The assessment, which concludes the Fund's customary examination in recent weeks, sounds like a major new promotion for the budget prudence claimed by Economy Minister Giancarlo Giorgetti, and translated by the markets with a spread that has been consistently below a level of 90 for weeks now, unprecedented for several years.

Of course, in the blender agitated by threats of US tariffs and a burning East from Ukraine to the Middle East, the challenges for a country with high debt are not light. But the starting point, the IMF acknowledges, is the "brilliant fiscal performance" that brought the primary surplus back into the Italian accounts last year, well ahead of forecasts. This bridle on public finance balances, notes the Monetary Fund report in the most significant passage on the substantive level, was not pulled by damaging the real economy, whose 'resilience' to the adverse winds of the international economy was shored up with 'solid policies to support growth' and 'a record level of employment'.

The most recent proof comes from the results of the first quarter of this year, which 'despite the increased uncertainty over global trade policy', managed to post 0.3% growth also thanks to 'continued growth in investment'. And this factor, with the acceleration expected in the final phase of the NRP, should help to hold the fort while waiting for the positive effects of the maxi spending programme decided by the German government to kick in. In such a context, but here of course the decimals of the forecasts venture on a slippery slope due to the uncertainty of the outlook, Italy should continue to measure 'moderate growth' this year (the IMF forecasts +0.5%, one decimal under the government's estimates), and a slight further recovery in 2026 (+0.8%) followed by an equally modest deceleration (+0.6%) in 2027. This would be enough to keep the deficit below 3 per cent of GDP in the next two years, after closing 2025 at 3.3 per cent as also forecast by the government, while the debt line drawn by the Fund's analysts runs about one point of GDP higher than the one drawn at the Ministry of the Economy.

It is also for this reason that the report calls for the primary surplus to rise to 3% of GDP in 2027, doubling the government's ambition, which currently envisages it at 1.5% for that year. This is a hypothesis, however, that seems complicated to put on the agenda, especially in times dominated by the prospect of a relaunch of investments in Defence, which despite Italy's current cautiousness appears destined to make itself felt in the accounts. More open is the debate on the Fund's other indications, which call for containing pension spending, reducing government guarantees on loans, and improving the efficiency of spending. These are all topics that come up again and again in the analyses of Giorgetti himself, who, together with his deputy Maurizio Leo, also finds in the lines of the report a promotion of the results produced in terms of revenue from spontaneous compliance with the emphasis placed by the tax reform on the 'preventive' instruments in the hands of the tax authorities.