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(Bloomberg) — Italy’s government expects the country’s budget deficit to fall below the European Union limit this year despite a downward revision of its growth forecast due to the Iran war, according to people familiar with the matter.
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The latest government projections will show the deficit will likely be under 3% of gross domestic product in 2026, said the people, who declined to be named because discussions are still ongoing. Final numbers are expected to be made public on Wednesday, the people added. The forecasts are still being calculated and may still change.
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Alongside the deficit forecast, Prime Minister Giorgia Meloni’s government is set to cut Italy’s growth forecast to 0.5% from 0.7%, Bloomberg reported last month. Debt is still seen well above 130% for the foreseeable future.
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The Finance Ministry said it is too early to comment on any numbers that are still being worked on.
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A deficit below 3% of output would make it easier for Italy to exit the EU’s Excessive Deficit Procedure, a monitoring regime featuring a list of shame for countries with big budget shortfalls. Finance Minister Giancarlo Giorgetti had hoped to do so already this year but last year’s deficit reading came in at 3.1% of GDP, according to Italy’s statistics office. The EU’s budget deficit limit is at 3% of GDP.
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Meloni and Giorgetti have both been calling for the EU to suspend the bloc’s budget rules if the impact of the war in Iran intensifies. Italy is the EU’s second-largest gas consumer after Germany, and relies on the fuel for about 40% of its energy mix, making it particularly vulnerable to higher energy prices and limited supply.
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The Italian premier has so far benefited from a healthy fiscal outlook and stable governing coalition that have helped lower borrowing costs creating more spending space. But with the economic outlook hit by the war and Meloni’s coalition showing cracks following a recent defeat in a referendum on justice reform, the Italian premier could find herself under greater pressure by both voters and her coalition partners.
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