Italy Striving to Reduce Debt Load

Italy, saddled with the eurozone’s second-biggest debt load after Greece, may be close to coming to grips with its problem.

It’s partly being helped by the economy, which has grown for 10 straight quarters and maintained its pace of momentum in the most recent quarter. In addition, the nation can thank a pickup in inflation and a drop in bond yields, a combination that gets the government nearer to reducing the load than it’s been in a decade, Bloomberg reported.

For the first time since the financial crisis, the nation is enjoying a convergence of its economic growth, debt, inflation rates as well as average yields on government securities. It might be about to see gross domestic product rise more than public debt this year, thus reducing the debt-to-output ratio.

That’s a goal the government has been pursuing for a long time, as highlighted by Finance Minister Pier Carlo Padoan in a post on Twitter on Thursday. “After stabilizing the debt, we now need to put it on a descending path, otherwise the country-risk will remain high.”

Padoan’s comments came as the country’s main business lobby forecast that debt will decline slightly to 131.8% of GDP next year from 132.6% in 2017. He also said the economy looks like it’s “back to normal.”

Meanwhile, Italian employers group Confindustria on Thursday raised its forecasts for Italy’s economic growth this year and next, and the government said it would do the same when it issues new official projections next week, Reuters said.

Italian economic data has been brightening since gross domestic product rose a stronger-than-expected 0.4% in the first quarter, though the country continues to lag most of its eurozone peers.

Confindustria raised its forecast for 2017 growth to 1.5% from a previous forecast of 1.3%, made in June. Next year, when Italy faces an uncertain national election, growth will slow to 1.3%, the employers’ lobby said, revising up its June forecast from 1.1%.

The economy has recently been buoyed by domestic demand, with consumer spending supported by tax cuts for low earners. Growth will accelerate to 0.5% in the third quarter, Confindustria forecast, before slowing to 0.3% in the last.

The stronger outlook will help public finances, said Confindustria, which trimmed its forecast for the 2017 budget deficit to 2.1% of GDP from 2.3%, bringing it into line with the government’s target.