IMF Warns Italy; Economic Growth Risks Decline

On Wednesday, July 26, the International Monetary Fund warned that Italy's economic policies, which delay the reduction of public debt and the receipt of funds from the European Union's support package, could lead to a decline in economic growth and make financial management more difficult for Rome. According to this international body, Italy's GDP – the third largest economy in the Eurozone – is expected to increase by 1.1% this year and 0.9% in 2024, a decrease compared to the 3.7% growth in 2022. The IMF stated: "Policies that slow down the reduction of public debt or cause long delays in receiving EU economic assistance to members (NGEU) can increase concerns regarding financing. Meanwhile, tightening monetary policies may disproportionately affect Italy, increasing borrowing costs. This could also reduce access to financial resources and raise concerns about the links between independent banks and companies. Rome has lagged behind in implementing the policies agreed upon with Brussels and in spending the cash received from the EU aid package. According to the IMF's forecast, Italy's public debt – which has the second highest debt in the Eurozone after Greece – will decrease from 144.4% of GDP in 2022 to 140.5% this year. The IMF report indicated that, based on the EU harmonized index for Italy, thanks to lower energy and food prices, the average inflation rate in Italy will decrease from 8.7% last year to 5.2% in 2023 and 2.5% next year. The latest statistics show a 6.7% inflation rate for the EU harmonized consumer price index for Italy in June, down from 8% the previous month. The IMF has warned about the "deep crisis" in Lebanon, warned of increasing headwinds in the Middle East, and highlighted the "bleak" global economic outlook from the Bank of England. The risk of a widespread recession was raised at the World Economic Forum in Davos.