Italy employers slash GDP forecasts, hike deficit, debt

ROME: Italy's economy will shrink in 2014 for a third year running, while the public debt will continue to rise, employers' association Confindustria said on Tuesday.

Gross domestic product will fall this year by 0.4 percent following declines of 1.9 percent in 2013 and 2.4 percent in 2012, Confindustria said, slashing its previous forecast for growth of 0.2 percent, made in June.

Italy's public debt, the second highest in the euro zone after Greece's, will rise to 137 percent by the end of this year, from 132.6 percent in 2013, and continue to climb to 137.9 percent in 2015, the group said.

It called for Matteo Renzi's coalition government to take "urgent action" in the 2015 budget, to be presented in mid-October, to reduce labour taxes and increase investments to revive the economy.

However, the employers' lobby also warned that spending cuts so far identified by the government did not seem sufficient to keep a lid on public finances and it saw a risk that Renzi would resort to new tax hikes which could depress the economy further.

Hopes of a strengthening recovery in Italy have been dashed by a raft of negative data in recent weeks. The economy shrank 0.1 percent in the first quarter after emerging from a steep two-year recession at the end of 2013.

That was widely interpreted as a blip on the road to recovery until, last month, data showed GDP fell again by 0.2 percent in the second quarter, plunging Italy into its third recession in six years.

Confindustria forecast that next year will post a very weak recovery with growth of 0.5 percent, down from its previous forecast of 1.0 percent.

On Monday the Organisation for Economic Co-operation and Development also forecast Italy's economy would shrink 0.4 percent this year, but was even more downbeat than Confindustria for 2015, when it sees negligible growth of just 0.1 percent.

Despite the weakening economy, Renzi's coalition government will manage to keep the fiscal gap just inside European Union limits, helped by lower debt servicing costs due to the steep fall in yields on government bonds, Confindustria said.

It forecast the 2014 budget deficit will come in bang on the EU's limit of 3 percent of GDP for the third year running and will edge down to 2.9 percent in 2015.

Those forecasts were revised up from 2.9 percent and 2.5 percent respectively in the group's June projections.