Matteo Renzi.jpg
Photograph: EPA/STEPHANIE LECOCQ EPA/STEPHANIE LECOCQ

Italy's economy will grow at a slower pace and the country will be more indebted than previously anticipated, the government said Tuesday, as it revised economic forecasts in preparation for next year's budget law.

In April, Prime Minister Matteo Renzi's government said gross domestic product (GDP) was expected to expand by 1.2 per cent this year and 1.4 per cent in 2017, while the deficit was supposed to fall over the same period from 2.3 per cent of GDP to 1.8 per cent of GDP.

Instead, the economy will expand by just 0.8 per cent this year and 1 per cent in 2017, while the deficit will fall to 2 per cent of GDP, Renzi said after a cabinet meeting. He said the budget shortfall for 2016 was expected to be 2.4 per cent, slightly higher-than-expected.

Italy's 2017 deficit could be even higher, at 2.4 per cent, if parliament approves extra spending on two "exceptional circumstances," namely last month's deadly earthquake and an influx of boat migrants, Renzi said.

The government also said public debt, which Italy is under pressure to reduce, would rise further to 132.8 per cent of GDP, from 132,2 per cent last year, and that the 2017 budget law, expected to feature tax cuts, would be unveiled in mid-October.

The European Commission, which polices eurozone countries' budgets, will have to approve Italy's economic plans. Renzi is a vocal critic of austerity policies, and spendthrift policies could help him win a crucial referendum on constitutional reforms due on December 4.

Italy's economic performance has been miserable for the last 15 years. The country went through a severe double-dip recession after the global financial crash in 2008, and a timid recovery halted in the second quarter of 2016, when zero growth was recorded.

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