Archive for November 26th, 2008

Italian government financial support reduces from EUR80 Billion.

Salemi 1 euro house Sicily

At nearly 105% of gross domestic product, Italy has the highest debt in Europe compared to the size of its economy, limiting the government’s ability to cut taxes and raise spending in a bid to lift the economy.

Silvio Berlusconi’s cabinet is this week set to review what the Italian premier dubbed an EUR80 billion stimulus package, but most of the funds have already been accounted for as E.U. money or in the Italian budget and maybe it will only be EUR4 Billion allocated to family support.

Italy‘s economic recession is likely to extend through much of 2009 due to lower demand and tighter lending conditions resulting from the global financial crisis, the Organization for Economic Cooperation and Development said Tuesday.

In its bi-annual outlook report, the Paris-based organization of the world’s 30 most industrialized countries said it expects Italy’s gross domestic product to contract by 0.4% this year and by 1% in 2009. A recovery in Europe’s fourth-largest economy is expected only in 2010, when GDP is forecast to grow by 0.8%.

In June, before the international financial crisis deepened, the OECD had predicted that the Italian economy would expand by 0.5% in 2008 and by 0.9% in 2009.
“The recessionary forces affecting the whole OECD area come at a bad time for Italy, which was already suffering from a long period of low growth,” the OECD said.
It warned the financial turmoil was hitting an economy already weakened by several years of low productivity growth, deteriorating competitiveness and high public debt.

Out of its 30 member countries, the OECD expects only Iceland, Ireland and the U.K. – which are expected to be strongly hit by the financial crisis – to see their economies contract by more than Italy’s 1% rate in 2009. The economy of the 15-country euro area, which includes Italy, is seen shrinking 0.6% next year.

The OECD predictions are worse than those of the IMF, which Nov. 6 forecast Italian GDP would shrink by 0.2% this year and 0.6% in 2009, and of the European Commission, which Nov 3 predicted zero growth for both years.

Italian GDP shrank by a quarterly 0.5% in July-September, the largest decline since 1998, after contracting by a downwardly revised 0.4% in the second quarter, preliminary data from statistics office ISTAT showed Nov. 14.

Italy’s unemployment rate, which has been constantly falling for more than a decade to hit a 6.2% low in 2007, is expected to rise to 6.9% in 2008, 7.8% in 2009 and 8% in 2010 as a result of the economic recession.

Although Italian banks are less exposed to the household property market, profits have been hit sharply by the financial turmoil and higher inter-bank rates. As a result, credit conditions for Italian households and companies are tightening like in other countries, the OECD said.

“With high public debt, further fiscal tightening is inevitable – the consequences of excessive debt can be clearly seen in the recent widening of sovereign interest rate spreads,” the organization said.

The spread between Italian 10-year government bonds and equivalent German ones Oct. 31 hit their highest level since the start of the euro currency as investors sought safety away from countries like Italy with weak public finances.

At nearly 105% of gross domestic product, Italy has the highest debt in Europe compared to the size of its economy, limiting the government’s ability to cut taxes and raise spending in a bid to lift the economy.

Silvio Berlusconi’s cabinet is this week set to review what the Italian premier dubbed an EUR80 billion stimulus package, but most of the funds have already been accounted for as E.U. money or in the Italian budget and maybe it will only be EUR4 Billion allocated to family support.

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