Moody's forecasts 0.1% Italian GDP drop

(ANSA) - Rome, August 18 - The Moody's rating agency said Monday that it expects Italy's gross domestic product to drop 0.1% in 2014, revising down its previous prediction of growth of 0.5%. The agency said Italy would not hit its target deficit-to-GDP ratio this year of 2.7% after the country returned to recession, adding that there were "significant risks" of the deficit getting even worse. Premier Matteo Renzi promised that Italy will not breach the EU's deficit threshold of 3% of GDP after Italy slipped into its third recession in five years.
    In an interview published in the Financial Times on Monday, he had already admitted the deficit will not drop to 2.7% this year, saying it will be 2.9%. "I have absolutely no intention of breaking the 3% ceiling," Renzi told the FT. "We hope to have better [growth] figures in the second half and as a result will be at 2.9 per cent [of GDP]".
    Last week national statistics agency Istat said Italy was officially back in recession, as GDP dropped 0.2% in the second quarter after shrinking 0.1% in the first three months of the year.
    This means that the government's forecast of 0.8% growth this year - the basis for its budget calculations - is set to be off the mark. Moody's added that the growth outlook would "complicate the passage and the completion of the agenda of structural reforms of the Renzi government".
    It added that: "the slowness in proceeding with reforms suggests that the government's popularity has not translated into a political drive for... a whole of broader reforms". It said comments by spending review chief Carlo Cottarellis suggested that Italy has trouble "making permanent spending reductions in the face of political pressure".