We expect Italy’s economic growth to pick up to 5.3% in 2021, based on a normalization of the health situation and the maintenance of fiscal and monetary stimulus. Standard & Poor’s writes in a report on Italy, according to which an effective use of the Next Generation Eu by the Government could give a strong boost to public investments, which remained about 30% lower than the levels prior to the great financial crisis a decade ago. S&P predicts a defciit / GDP close to (% this year, but also writes that the potential recovery in GDP means that the debt / GDP ratio could stabilize this year.
The agency continues in its report that Italy’s new “national unity” government, led by former ECB president Mario Draghi, said it would focus on responding to the pandemic and supporting economic recovery. The government, a coalition of six parties, will also begin to develop a strategic plan to invest the approximately € 200 billion share of the EU Next Generation Fund. S&P then notes that expectations are high about the possibility for the new government, which represents nearly 90% of parliamentary seats, a larger majority than any other postwar government, to reform the economy, fiscal framework and judiciary of the ‘Italy. Obviously, the agency also warns that these developments do not have an immediate impact on Italy’s BBB rating, with a stable outlook. Moreover, since the general elections must take place by June 2023, the government of Prime Minister Draghi has only two years to achieve its objectives, not much time for the long-term structural challenges that await Italy: the population aging, highly regulated labor and product markets, large economic and educational disparities between the north and south, and poor ability to attract investment from the rest of the world.
For the agency, the new government will also have to closely monitor the health of the financial sector, given its low profitability and high exposure to small and medium-sized enterprises, hard hit by the pandemic. Recalling the public guarantees for companies that are worth up to 25% of GDP, the agency notes that if they were used, the public debt would increase beyond our current expectations. S&P estimates Italy’s GDP growth of 5.3% in 2021, after -8.8% in 2020. Yet – concludes S&P – Italy is probably still in a slightly better position than some of its neighbors, thanks to its relatively large manufacturing sector, which was less affected than the services sector by the second lockdown.