The markets threaten to become the main watchdog of Italy's fiscal discipline. The International Monetary Fund (IMF) has warned that the stimulus plans it wants to move forward the government of Giuseppe Conte could leave the country in a situation "very vulnerable", that would leave it on the verge of recession in case of the minimum shock. After the official mission of its technicians to the country, the agency also refutes the economic forecasts of the executive of the M5S and the Lega and lowers the growth for the period 2018-2020 to 1% per year. That sluggishness, together with higher spending and interest on the debt, would trigger the public deficit to between 2.8% and 2.9% of the Gross Domestic Product (GDP) in 2020. That is, on the verge of breaching the cap. 3% provided by the Stability and Growth Pact.
Italy has been accumulating problems in recent years which summarizes the IMF in its report of conclusions after the visit to the country. Accumulate low growth, the income of its citizens have fallen back to the level of two decades ago, unemployment has exceeded 10% and young people return to emigrate. Conte executive has decided to apply the recipe to expand spending and investment and lower taxes to companies to straighten the situation. The counterpart: a budget gap that, according to the Commission and the IMF, will keep Italy anchored in a volume of debt that represents more than 130% of GDP.
And precisely, that burden is what can leave Conte's expansive plans to nothing. In particular, the IMF points out, if the "high risk premium" persists. Something that the finance minister himself, Giovanni Tria, has admitted on several occasions: current levels are already unsustainable. The IMF recalls that a high profitability of the debt affects the cost and availability of banking to obtain capital and that it weakens its balance sheets, raises the costs of the private sector in order to obtain loans and has a negative impact on government accounts.
The European Commission estimated that the Italian budget gapor next year it will be 2.9% of GDP and in 2020 it will reach 3.1%, compared to the Italian executive's forecast of 2.4% next year and then down to 2.1%. %. The IMF places it between 2.6 and 2.7% in 2019 and one tenth more in 2020. Regarding growth, the agency believes that the higher cost of the debt will eat the expansive plan of the Italian executive. While the Commission set the economic expansion at 1.2% in 2019 and 1.3% in 2020, the IMF believes that the measures will serve to sustain growth by a weak 1% this year, 2019 and 2020 to subsequently decrease .
The IMF also foresees that the debt will remain around 130% of the Gross Domestic Product (GDP) during the next triennium. Italy, the agency concludes, will need adjustments to reduce that burden as monetary policy normalizes and interests grow. But if in that period, he points out, the economy will meet any shock the government would be forced to a process of fiscal consolidation because of the scarce fiscal margin it has. And that would leave the country at the other extreme where the M5S and the Lega want to take it: on the verge of recession.