Daily Management Review

Italian 2019 Growth Prospect Significantly Slashed By Morgan Stanley


11/29/2018




Investment bank Morgan Stanley believes that it would be an uphill task for the anti-establishment government of Italy to achieve the growth rate target for its economy that it has set for 2019.
 
A target of achieving a growth rate for its economy of about 1.5 per cent for the entire of 2019 has been forecast by the Italian government in its latest draft budget plan for 2019. In comparison, a projected growth rate of only about 0.5 per cent for the gross domestic product (GDP) of the country for next year has been made by Morgan Stanley in its latest forecast. The figure that has been issued by the investment bank is just one third of what the Italian government hopes to achieve next year.
 
"We expect a contraction in economic activity towards year-end, mainly driven by domestic demand, both consumer spending and business investment," the bank said in its European Economic Outlook note, published this week.
 
"Further out, the fiscal boost to growth will probably have some beneficial effects on consumption. But it's unlikely to be so big as to result in an improvement of the public finances," the note added.
 
The basis of the GDP growth forecast by the populist coalition ruled Italian government is the assumption that economic activities would be spurred by the plans of the government to spend significantly more on infrastructure projects and make more money available at the hands of its citizens. The Italian economy is already struggling for some time and it is the third largest economy of the eurozone.
 
"Tackling the social problems caused by the negative trend in the economy is equally important and urgent," Giovanni Tria, the Italian finance minister, told the European Commission earlier this month in a letter.
 
The plan of the government is to propose and implement a Citizenship Income, a project that would have the primary objective of alleviating poverty and enhancement of social inclusion. It has been estimated that the project would come at a costs of about 0.37 per cent of the total anticipated growth of the country in 2019. However, according to the note by Morgan Stanley, growth in the Italian economy would be weighed down in 2019 by general market conditions next year and a possible fall in export demand.
 
"A further tightening in financial conditions and falling sentiment are both key risks," the investment bank noted.
 
It has been three months now that here have been repeated concerns expressed form various quarters about the 2019 proposed budget plan of Italy. Both investors and European officials alike believe that considering the huge debt pile that the country faces, the proposed increase in government spending for next year would be unsustainable.
 
The debt to GDP ratio of 130 per cent of Italy is just behind that of Greece within the euro zone.
 
"In a triple whammy, weaker growth and rising financing costs can jointly stress the state coffers, weaken the banking system and produce a knock-on effect on the real economy," the investment bank warned
 
(Source:www.fxstreet.com)






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