Sources say Italy will cut its 2023 growth forecast to just over 0.5%.

Sources say Italy will cut its 2023 growth forecast to just over 0.5%.

By Giuseppe Fonte

ROME (Reuters) – Italy’s outgoing government under Mario Draghi is preparing to cut its 2023 growth estimate to just over 0.5 percent as the energy crisis affects the euro zone’s third-largest economy, sources said, ahead of the official release of new economic forecasts next week. . .

The Treasury Department expects gross domestic product to grow 3.3% or 3.4% this year, up from the 3.1% target set in April.

Two sources familiar with the matter said Friday that the government expects GDP growth of 0.6-0.7% in 2023, well below the previous target of 2.4%, warning that the estimates remain subject to changes due to the increasingly uncertain outlook.

Draghi has already allocated about 66 billion euros ($64.3 billion) since January in an effort to cushion the impact of rising electricity and gas bills on businesses and families.

His successor, who will be out of the general election on Sunday, is likely to walk the same path.

Italian Economy Minister Daniele Franco said last week that Italy plans to confirm its 2022 budget deficit target of 5.6% of national product set in April. Lower-than-expected growth will push the fiscal gap next year above the previously targeted 3.9%.

The forecast will be included in the Treasury’s Economic and Financial Document (DEF) to be published by September 27.

Moreover, it is based on an unchanged policy scenario where Draghi leaves it up to the next government to set more ambitious goals, before presenting the 2023 budget to the EU authorities and the Italian Parliament.

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Italy should send the draft budget to Brussels by mid-October for approval, but sources said the time needed to form a new government could mean a delay this year.

Its economic adviser said nationalist Giorgia Meloni, the front-runner for Italy’s next prime minister, is planning billions of dollars in tax cuts in the 2023 budget to boost growth.

In an interview with Reuters on August 25, Meloni said she would respect EU budget rules and not make a hole in the country’s finances.

With inflation approaching double digits, the European Central Bank raised interest rates twice in July and September and promised more measures, complicating Italy’s efforts to head off the threat of recession and reduce public debt.

Retirement age is one of the most important issues facing the new government in its first budget.

A temporary system that allows people to retire when they turn 64 ends this year, with the retirement age rising to 67 on Jan. 1 under an unpopular reform in 2011 which League leader Matteo Salvini, Meloni’s ally in the right-wing bloc, wants to abolish.

In another challenge, each year Rome has to adjust its consumer price pensions. The Treasury said last June that the pension bill would rise next year to 16.2% of GDP from the 15.7% projected in 2022 due to inflation. (1 dollar = 1.0269)

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