Italy’s 11.8% budget deficit target to keep the economy afloat amid Covid

Photographer: Alessia Pierdomenico / Bloomberg

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Italy’s debt this year will surpass the country’s previous record accumulated after World War I, exposing the debilitating cost of the coronavirus pandemic to euro areathe third largest economy.

The new loan account of 159.8% of gross domestic product appears in a fiscal outlook ratified by Prime Minister Mario Draghi’s cabinet on Thursday. This exceeds the probable historical maximum of 159.5% reached in 1920, shortly before the era of the fascist dictatorship of Benito Mussolini.

The economic update also confirms a lower growth forecast of 4.1% this year, with a target of 4.5% once stimulus and other measures are taken into account, according to a government official. It predicts a budget deficit of 11.8%, which will increase debt by billions of euros to protect citizens and businesses from the consequences of the pandemic.

The figures represent the first complete set of economic forecasts compiled since Draghi took over the helm of Italy’s response to the coronavirus, which has killed more than 115,000 and caused blockades that have destroyed key sectors such as tourism. The government has agreed to borrow 40 billion euros ($ 48 billion) for new stimulus measures, bringing the global pandemic spending so far to more than 170 billion euros.

Read more: Draghi is facing plans to borrow Until $ 48 billion Month

For now, Italy’s spending is backed by the European Central Bank, which buys government bonds to maintain country-to-country spreads and make pandemic-era debt considerably less expensive to service.

With austerity pushed too far to allow the government to focus on rebuilding the economy, the rise in growth driven by national and European Union stimulus measures should help help Italy’s finances from next year.

The deficit is reduced to 5.9% of GDP, while debt is expected to be reduced to 156.3% of output by 2022, according to forecasts. According to a draft seen by Bloomberg, the government does not plan to obtain a deficit return of less than 3% of production by 2025. Debt is expected to return to pre-crisis level of 134.6% by the end of the decade. .