Bank of Italy: “We need timely implementation of the Pnrr. Debt risks from spreads and pensions”

ROME. A warning not to waste the Pnrr, the implementation of which is “crucial”, a splash of optimism given that “GDP is better than expected” and growth will return in the first quarter and an invitation: a permanent and sustainable tax cut is needed. The Bank of Italy, in a hearing before the joint Budget commissions of the House and Senate, takes stock of the Def and promotes the government document, with reservations. “The short-term picture” of the Italian economy “appears slightly more favorable than that underlying our latest projections published in January” (GDP of 0.6% in the current year) and the forecasts presented in the Def “although at the top of the range of available estimates», are overall «consistent» with the situation, says the head of the Bank of Italy’s Economics and Statistics department, Sergio Nicoletti Altimari.

Via Nazionale sees “encouraging signs”. «In the surveys conducted by the Bank of Italy between February and March, the judgments of companies on the general economic situation improved again, supported by favorable assessments on the evolution of demand and by the lessening of the difficulties associated with energy costs and availability of raw materials and intermediate inputs», adds Nicoletti Altimari. «In our country the growth – it is noted – which until last summer had been significant despite the increase in energy prices and the uncertainty associated with the war, suffered a setback in the fourth quarter of 2022. The consequences above all had an impact of the high inflation on real incomes and household spending, which suffered a sharp contraction, albeit mitigated by the support measures adopted by the government”.

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There is a risk though. «The reduction in the incidence of the debt planned by the government over the next three years is not, however, free from risks of other types, also considering the smallness of the planned improvements. In this regard, the Def elaborates a scenario in which the decreasing dynamics of the ratio would stop, to reverse, already in 2025, in the event of an increase from next year of the yield differentials between our and German government bonds equal to 100 basis points» says the Bank of Italy. «In such an adverse scenario, the negative effects of higher interest expenditure would be mitigated in the short term by the relatively high average residual life of the Italian public debt; on the other hand, the more stringent financing conditions would be extended to the private sector with a negative impact on economic growth and, through this channel, on public finances», he adds. “In the longer term, however, public finances will have to face the challenges deriving from the increase in the average cost of debt financing and from the aging of the population. The latter will lead to upward pressure on public spending and will tend to depress potential growth », he observes. According to the simulations presented in the Def, “even if the objectives set by the government for 2026 were fully achieved, in the absence of a subsequent correction of the accounts, the debt-to-GDP ratio would start to increase again in the immediately following years”.