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GDP growth is projected to be 0.9% in 2019 and 2020. Private consumption will moderate, as lower employment growth and rising consumer price inflation temper real household disposable income gains and offset the positive effect of expansionary fiscal policy. Business investment will slow as domestic and external demand growth weakens. With weak domestic demand, the current account surplus will remain around 2.5% of GDP.
Fiscal policy will turn expansionary in 2019, widening the budget deficit to 2.5% of GDP in 2019 and 2.8% in 2020. Public debt, which has been gradually falling in relation to GDP, will instead stabilise at a high level. Government bond yields have surged by 185 basis points since mid-2018. Policies should ensure that social spending is sustainable, effective and inter-generationally fair. While systemic banks are well capitalised and the stock of non-performing loans is declining, banks’ balance sheets are vulnerable to further increases in sovereign bond yields. Measures to strengthen competition in product markets, enhance education and skills, and improve work incentives are a prerequisite to raise economic growth durably.
1. Non-performing loans as share of banks' total lending to non-financial corporations (NFCs).
Source: OECD Economic Outlook 104 database; and Bank of Italy.
Source: OECD Economic Outlook 104 database.
Economic Survey of Italy (survey page)