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EC says Italy's recovery weak,debt rising

Strong external demand could boost economy later in 2014

25 February, 20:03
EC says Italy's recovery weak,debt rising (By Sandra Cordon) (ANSA) - Rome, February 25 - Growth in the Italian economy will be weaker this year than previously forecast and the country's debt as a percentage of gross domestic product will rise in 2014, the European Commission said Tuesday.

The EC revised down Italy's 2014 growth forecast to 0.6% from previous estimates of 0.7% and warned that when final figures for last year are settled, those results will likely also be weaker than previously thought.

"After contracting 1.9% in 2013, Italy's economy is expected to stage a slow recovery in 2014, driven by stronger external demand," the EC said in its report on the Italian economy. "As credit conditions ease, growth is expected to rise further in 2015," along with consumer confidence and external demand from trading partners regaining their own strength following recession in many parts of Europe, the report said. Debt as a percentage of GDP will increase this year, due to new expenses in 2014, including payments owed to private business, and reach 133.7% - still lower than the 134% previously forecast by the EC, it said.

Next year, the debt-to-GDP ratio will begin to drop, thanks to a better economy, the report added. The EC said it had revised downwards its economic growth forecast for Italy this year and last, but was keeping steady its expectations for growth of 1.2% in 2015.

The EC had previously expected the economy would lose 1.8% in 2013 and in this report, it worsened its 2013 forecast to a loss of 1.9%.

That is gloomier than the Italian government's predictions late last year of a 1.7% loss in 2013, growth of 1% this year and of 1.7% in 2015.

Unemployment in Italy will likely be worse than previously predicted, the EC said as it lowered its forecast to a 12.6% jobless rate for 2014 and 12.4% for 2015.

In November, the EC had predicted jobless rates of 12.4% and 12.1%, respectively. A statement faulted bad labor-market conditions and weak consumer demand for economic weakness.

The EC noted that unemployment is set to remain high throughout the eurozone and the European Union, with only a "modest" reduction expected.

Across the eurozone, the average unemployment rate is forecast to drop from 12.1% in 2013 to 12.0% in 2014 and 11.7% in 2015. Italy's new Premier Matteo Renzi, who faced his second of two confidence votes on Tuesday, has said that the country has been mired in a "swamp" of economic weakness and loss.

He has maintained his new, slimmed-down cabinet has the plan to help Italy as the economy struggles out of its worst recession since the Second World War.

In Italy, that "severe recession...came to a halt with economic activity posting a moderate increase in the last quarter of 2013," the EC forecast said.

It blamed weak consumer demand in part on tight financing conditions "and high uncertainty holding back consumption and investments".

European Economic and Monetary Affairs Commissioner Olli Rehn on Tuesday hailed the strengthening of economic sentiment in Italy. Rehn said the improvement in "vulnerable" countries like Greece, Italy, Spain and Portugal was "encouraging".

He also praised the country's new Economy Minister Pier Carlo Padoan, former Organisation for Economic Cooperation and Development chief economist, saying he will know "what to do to relaunch growth in Italy".

Rehn, a watchdog of the 3% budget-to-GDP limit imposed by EU treaties, had already hailed Padoan's appointment and many are looking to him to enact Renzi's pledges to cut red tape and labour costs, lower taxes on the middle- and lower-income classes and help speed justice reforms to attract foreign investment.