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Paolo Pizzoli, senior economist at ING, points out that in a cabinet meeting held on Monday evening, the Italian government approved the updating note to the Economic and Financial Document (EFD), which sets the macroeconomic framework for the upcoming budget.

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“A cross reading of the relevant tables shows that the government is aiming at a mildly expansionary budget. According to the government, this should allow Italian economic growth to accelerate from 0.1% in 2019 to 0.6% in 2020 (against a trend forecast of 0.4%).”

“The government aims for  a 0.2% increase in the structural deficit, which could be qualified as a moderate fiscal push. As far as headline metrics are concerned, the EFD foresees the headline deficit stabilizing at 2.2% of GDP next year. On the back of these planned deficit developments, the debt-to-GDP ratio is expected to peak this year at 135.7% (a revision of past GDP data has inflated the debt ratio), and start a modest decline in 2020, courtesy of some privatization intakes. In the document, the government admits that such a profile would not pass current debt-rule tests.”

“With zero GDP growth expected in 2019, the Italian economy is  likely to be  the  growth laggard in the eurozone. To the eyes of a growth-conscious new commission, this could possibly justify some tolerance to a mild counter-cyclical loosening.”