The Italian economy experienced a modest growth of 0.7% in the previous year, falling short of the government's projected 1%. However, the budget deficit saw an unexpected decline to 3.4% of GDP from 7.2% in the preceding year. Analysts predict that this trend of 0.7% growth will likely continue into the next year, despite the government's ambitious target of 1.2%. The public debt ratio has slightly increased, reflecting the lingering impact of past economic measures.

Economic Performance and Future Projections

In the face of slower-than-expected economic expansion, Italy's financial outlook remains cautious. Last year's GDP growth matched the previous year's rate at 0.7%, influenced by additional working days. Despite this, the government aims for a higher growth rate of 1.2% in the upcoming year, which many experts view as overly optimistic. The stagnant GDP in the final two quarters of last year suggests a weak foundation for future growth.

Independent analysts generally forecast a continuation of the 0.7% growth rate for another year. The government's ambitious targets are seen as challenging, especially given the recent economic performance. The third and fourth quarters of the previous year showed no significant improvement, leaving little momentum for the new fiscal period. This pattern of stagnation raises concerns about the sustainability of the projected growth figures for the coming year.

Budget Deficit Reduction and Public Debt

While economic growth has been sluggish, there has been a notable improvement in the budget deficit. It dropped significantly from 7.2% to 3.4% of GDP, surpassing the government's expectations. This reduction can be attributed to the phasing out of costly state incentives for energy-efficient home renovations, which had previously inflated the deficit. Prime Minister Giorgia Meloni plans to further reduce the deficit to 3.3% this year and below the EU's threshold of 3% by 2026.

Despite the positive developments in the budget deficit, Italy's public debt has risen to 135.3% of GDP, up from 134.6% the previous year. This increase is primarily due to the long-term effects of the home renovation scheme, even though it has mostly been phased out. The government had initially targeted a slightly higher debt level of 135.8% for the past year but now projects it to reach 136.9% in the current year. The slight downward revision of the 2023 debt level from 134.8% to 134.6% indicates ongoing efforts to manage public finances more effectively.