Falling growth and spread: how are Italy's public accounts?

Istat halves the growth for this year to 0.5 per cent compared to the 1 per cent predicted by the government, and the economy minister comments: it is no surprise, 'we are suffering from the very serious problems of industry, which has been registering negative growth for a year and a half'. The spread between Btp and German Bund drops below 110 basis points and Giorgetti himself exults: 'I had bet at the beginning of the year on a spread at 110, the only 110 I like! Let's continue like this, it's the right path'. So, between growth slowing down and the spread falling, how are our public accounts?

Before checking whether to intervene in the course of the year, the government aims to bring the manoeuvre home with the final approval of the Budget Law, by the end of the year. Then the accounts will be recalculated and, in all likelihood, with the next Economic and Financial Document in April, the estimates will be revised and with them the public finance variables, debt and deficit in the lead. It is a path that will have to be agreed in progress with the European Commission in compliance with the new budget rules set by the reform of the Stability Pact. There is already a not insignificant increase in the deficit from 2025 to 2027 amounting to a total of 50.1 billion. At the same time, a minimum structural adjustment of 0.5 per cent of GDP per year for seven years is to be guaranteed. It is now a question of verifying the actual impact the economic slowdown may have on public accounts. For the time being, the commitment, deemed credible by Brussels, to bring the deficit within 3% of GDP in 2026 remains firm. After all, we are in infringement proceedings and no deviations whatsoever are allowed. By 30 April next year, 'necessary measures' are expected to ensure that the deficit actually stays below this threshold. The fall in the spread will certainly have a positive effect on the development of interest expenditure, which in 2024 is around EUR 85 billion and is currently indicated to rise to EUR 96.5 billion in 2027. As the Parliamentary Budget Office points out, 'the alignment to the spread on Spanish sovereign bonds would lead to savings on the debt burden of more than 23 billion for the period 2025-29'.

According to the Structural Budget Plan, the deficit is expected to be 3.3% of GDP in 2025 (compared to 3.8% in 2024), 2.8% in 2026 and 2.6% in 2027. Estimates, however, are based on a growth forecast of 1.2 % next year, 1.1 % in 2026 and 0.8 % in 2027, but ISTAT already does not go beyond 0.8 % growth in 2025. If it goes as planned by the government, the debt will consequently have to be reduced by at least one percentage point per year from 2027. At the moment, it should rise from 135.8% in 2024 to 137.5% in 2027. The challenge at this point is all about growth and lies largely in the full implementation of the reform and investment programme envisaged in the NRP. As of 30 October, actual payments reached EUR 58.6 billion, up from EUR 52 billion at the end of July out of an expected total for 2026 of EUR 194.4 billion. So far, the NRP's contribution to growth has been minimal, and it is Istat again that points out that the 'expansionary' impact of the manoeuvre will not go beyond a modest 0.2 per cent, against the 0.3 per cent forecast by the government.

The geopolitical situation has objectively deteriorated due to the lingering effects of the two ongoing wars, between Russia and Ukraine and in the Middle East, which are affecting international trade and commodity prices. In Europe,' the UBP emphasises, 'the stalling German economy persists, and the trade barriers and fragmentation of trade already in place may be exacerbated. The latest data on German industrial production confirm this: in October, the drop was 1% on a monthly basis and 4.5% on an annual basis, so much so that it now seems certain that the German economy is about to embark on the road to its third consecutive annual recession. The German development model is in crisis, deeply conditioned by the performance of the manufacturing industry, which accounts for 20% of GDP. The Volkswagen crisis is certainly one of the most serious in the Federal Republic, which will be called to the polls at the end of February. Then there are the unknowns linked to the possible duties that will be imposed by Donald Trump once he takes office in the White House on 20 January. Also weighing heavily is the political stalemate in France, which is grappling with a difficult economic situation and ailing public accounts, with the deficit set to soar to 6.2 per cent of GDP this year and the debt already exceeding 110 per cent.