Time.news – La European Commission turns the spotlight on Italian accountswhile not publishing an opinion given that the budget law – approved during the night – will only be presented in Brussels in the next few days.
“In Italy, fears related to the high public debt-to-GDP ratio remain unchanged. Weaknesses in the labor market could increase again. Despite improvements in the banking sector, the risk of feedback loops is increasing due to the macroeconomic environment and requires careful monitoring”, reads the chapter of the Alert Mechanism relating to Italy.
“In the previous round of the Macroeconomic Imbalance Procedure, the Commission carried out an in-depth review and concluded that Italy is experiencing excessive macroeconomic imbalances. This year, the Commission considers it appropriate examine the persistence of excessive imbalances or their correction in an in-depth analysis“, reads the Commission document.
“The real GDP growth is forecast at 3.8% in 2022 and 0.3% in 2023. Inflation is high. On an annual basis, it rose to 12.8% in October, with core inflation estimated at 4.5%. Prices are bound to rise faster than wages.”
“Reading the scoreboard for Italy shows that in 2021 three indicators were beyond their indicative thresholds, namely the change in export market share, public debt and the change in the activity rate”, he points out the European executive.
“Cost competitiveness concerns appear to be limited. Nominal unit labor costs were unchanged in 2021 but are expected to rise in the future. The HCP-based real effective exchange rate depreciated slightly in 2021. Year after year, it continued to depreciate until August 2022. Conversely, productivity growth lagged behind EU countries for decades.” it still reads.
“Public debt remains high despite its ratio to GDP falling to 150.3% in 2021. While the debt-to-GDP ratio is expected to continue declining, it is expected to remain well above its 2019 level. The public deficit remains high, although it narrowed to 7.2% in 2021 and is expected to continue to decline . Sovereign bond yield spreads have diverged significantly from the eurozone average, which drives up funding costs, albeit rather gradually given the increase in the average maturity of outstanding debt. Fiscal sustainability risks are elevated over the medium term, while the projected decline in aging costs reduces the medium-term risk over the longer term.”
And again: “The banking sector has recorded substantial improvements in recent years. The reduction in the ratio of non-performing loans (Npl) has continued, reaching around 3.5% in 2021. Although this ratio remains only slightly above the euro area average, non-performing loans have increased since 2020 and the link to some corporate sector vulnerabilities may increase the risk of feedback loops.
Finally, “weaknesses in the labor market continue to cause concern. The unemployment rate rose to 9.5% in 2021 and remains relatively high although it is below the 10% threshold. It is expected to decrease in 2022 but to increase again in 2023. The activity rate is very low, especially for women, despite having increased in 2021. Youth and long-term unemployment rates remain among the highest in the EU”.
Dombrovskis, spending is growing too fast in 10 countries
“Among countries with low or medium debt, current expenditure is rising too fast in Austria, Lithuania, Germany, Estonia, Luxembourg, the Netherlands, Slovenia and Slovakia. For all these countries additional measures are needed”.
“In general we see that investments are keeping pace and in many cases budgets are conservative. This is good news. But there are some countries where current spending is rising too fast. Among the countries with high debts is the case of Belgium and we see some risks for Portugal,” he added. The Commission has not yet pronounced itself on Italy and Latvia because the budget laws have not been sent to Brussels.