IMF: Italy Recovers Well, Anxiety over Debt

The Italian economy has recovered positively from the shocks of the pandemic and rising energy prices, but high debt can only cause concern. This is what the International Monetary Fund explained following the visit of one of its delegations to Italy.

“The economy has recovered well from successive shocks caused by the pandemic and energy prices, thanks to a rebound in tourism and significant political support,” the IMF said in a statement. “However, growth has slowed. While on the one hand, this contributed to the economic recovery, on the other hand, expansionary fiscal policy kept deficits and public debt very high, raising Italy’s risk premium and acting as a brake on private sector investment.”

It notes that economic activity grew by 0.9 percent in 2023, and annualized growth of 0.6 points was registered in the first quarter of 2024, while GDP has exceeded pre-pandemic levels and turned out better than in other major eurozone countries.

Huge spending on home repairs, funded by generous tax credits, and greater use of the resources of the EU-funded National Recovery and Resilience Plan (PNRR) have contributed to the positive results. The resulting housing tax credits (the so-called Superbonus – ed.) were probably very limited compared to the amount of budgetary resources expended due to import losses, significant invoice discounts, increased price markups in construction, exclusion of other investments, and misuse of public funds,” IMF officials explained.

Therefore, ineffective anti-crisis measures should be canceled: “Faster-than-expected fiscal adjustment for debt reduction can be achieved with high confidence and limited growth costs, reversing inefficient and temporary crisis measures,” the Fund explains. The conclusion clarifies: “Despite the persistence of a large primary surplus, further fiscal efforts will be needed to meet growth-inspiring investment, spending pressures, and help restore fiscal space in the event of a shock.”