Italy targets debt ratio to fall this year as economy recovers -draft

Pre-pandemic level of GDP seen by middle of next year

Buildings are seen in the Porta Nuova district in Milan, Italy, March 27, 2017.

Buildings are seen in the Porta Nuova district in Milan, Italy, March 27, 2017.

REUTERS/Stefano Rellandini

ROME - Italy has sharply lowered its public debt target for 2021 to 153.5% of national output from a previous goal of 159.8% set in April, according to a draft of a forecasting document to be published by the Treasury.

Helped by a solid economic recovery from the COVID-19 crisis, the document shows Italy aims to gradually reduce its mammoth debt ratio, which is the highest in the euro zone after that of Greece.

The latest target would mark a decline from the post-war record of 155.6% of GDP registered in 2020, while the downward trend is projected to continue to 149.4% in 2022.

The draft of the twice-yearly Economic and Financial Document (DEF), seen by Reuters, was approved by the cabinet on Wednesday and the new figures are due to be released later in the day.

The draft forecasts economic growth of 6.0% this year, a partial recovery following the record contraction of 8.9% in 2020 when the economy was hobbled by COVID-19 lockdowns.

Economic output will recover to above its pre-pandemic level in mid-2022 thanks to another year of robust growth pencilled in at 4.7%, according to the draft.

In the near term, the third quarter of this year will see growth of 2.2% from the previous three months, the DEF forecast, following a 2.7% expansion in the second quarter.

The document highlighted numerous risks to the growth outlook, including the possible emergence of new COVID variants, raw materials shortages and the recent surge in energy prices.

Nonetheless, it said the planned return to pre-pandemic conditions, economic reforms and billions of euros of European Union recovery funds should ensure that growth and employment remain "well above the trend seen in the last decade".

Italy has been the euro zone's most chronically sluggish economy since the start of monetary union.

The budget deficit is targeted in the DEF at 9.4% of GDP this year, little changed from last year's level of 9.6% and down from an April forecast of 11.8%.

The deficit is forecast to decline to 5.6% next year and to stand at 3.3% in 2024, still above the 3% ceiling set out in the European Union's Stability Pact, which is currently suspended due to the COVID-19 crisis.

The 2022 deficit would be 4.4% of GDP under an unchanged policy scenario, the DEF showed, allowing the government to finance additional spending of 1.2% of GDP, or some 22 billion euros ($18.78 billion).

Prime Minister Mario Draghi and Economy Minister Daniele Franco will present the DEF at a news conference at 1400 GMT.

($1 = 1.1714 euros)

(Editing by Catherine Evans) ((; +39 06 8522 4232;))

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