Daily Management Review

Italy’s Debt To GDP To Rise Ot 160% This Year, Says EU


The coronavirus pandemic has hit Italy hard and its economy is expected to shrink this year. According to estimates that shrinking will result in a rise of the country’s public debt to nearly 160 per cent of its gross domestic product for the current year. This was stated by the European Union executive on Wednesday which clouded the economic environment of the country further as there were already expectations of a hard economic hit to the country because of the pandemic.
Italian government bonds could come under further strain because of the gloomy economic forecasts by Brussels which is the first time that the EU arm has made such a forecast since the pandemic started. The government bonds of the country are already being tested by markets even with the massive purchases made by the European Central Bank.
There was a sharp decline in the Italian debt after a ruling was issued on Tuesday by the German constitutional court that was examining the ECB stimulus programs that had been announced recently. The yield of the government bonds of Italy were pushed nearly 20 basis points to a week-and-a-half high of 1.947 per cent.
Italy’s debt was set to rise up to 158.9 per cent of GDP this year while it will get reduced marginally next year, the executive European Commission said. In comparison, the national debt of the country as recorded for 2019 was at 134.8 per cent of GDP and that was the highest that the ratio had reached sine the Second World War.
The forecasts made by the EU are worse than what the Italian government has predicted. The debt ratio of the country was estimated by the Italian government to reach 155.7 per cent this year, according to a statement issued by it at the end of April.
The debt to GDP ratio of Italy will only ne be second to that of Greece among the 27 countries of the EU. It has been estimated that the debt ot GDP ratio of Greece this year will increase to reach almost 200 per cent.  But according to the forecast of the EU Commission, the Italian debt would drop to 153.6 per cent of GDP in 2021.
The cost to the Italian economy because of the extended lockdown that was imposed to control the spread of the coronavirus pandemic is becoming clear with the easing of restrictions – which were amongst the severest in Europe.
The fiscal deficit of Italy is estimated to rise of 11.1 per cent for the current year according to the Commission, which will be way over the 3 per cent deficit limit that the EU has set for its member countries. The strict application of the EU deficit limit has however been suspended because of the pandemic to allow governments to make additional spending.
The Commission also said that its target of 3 per cent deficit will be crossed by all of the 19 countries of the euro zone this year. But while the bloc will record a fiscal deficit of 8.5 per cent on the average, Italy’s will be much higher than the rest.