Italy unemployment rises amid "stagnant" economy: ISTAT

Source: Xinhua| 2018-11-01 06:33:18|Editor: Liangyu
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ROME, Oct. 31 (Xinhua) -- Italy's jobless rate rose and the nation's economy appeared to have grounded to a halt after posting modest growth over the past three years, according to official data released on Tuesday and Wednesday.

Overall unemployment increased 0.3 percent to 10.1 percent in September compared to August, while youth (ages 15-25) unemployment added 0.2 percent to 31.6 percent in the same period, ISTAT national statistics agency reported Wednesday.

This came on the heels of Tuesday's report, when ISTAT said Italy's third-quarter gross domestic product (GDP) growth was flat compared to the second quarter. "The Italian economy was stagnant in the third quarter this year, marking a pause in the expansive trend that had been ongoing for over three years," the ISTAT report said.

This zero growth rate compared to +0.2 percent in the third quarter in the 19-country eurozone, European statistics agency EUROSTAT reported on the same day.

This is important because the government's draft 2019 budget -- which includes generous welfare packages coupled with tax cuts, to be paid by deficit spending of up to 2.4 percent of gross domestic product (GDP) -- is based on what critics have said are unrealistic GDP growth expectations.

This would not be a problem, if Italy were not so highly indebted. Its GDP amounted to 1.7 trillion euros in 2017 while its public debt stood at 2.3 trillion euros in July 2018 -- meaning that the country owes far more than it produces and that it lives on borrowed money.

The government's draft 2019 budget claims that Italy's GDP will grow by 1.2 percent in 2018, 1.5 percent in 2019, 1.6 in 2020 and 1.4 in 2021, while the public debt-to-GDP ratio "will decline from 131.2 percent in 2017 to 126.7 percent in 2021."

These forecasts have been called far too optimistic by Italy's own Parliamentary Budget Office (UPB), its Confindustria industrialists association, the European Union, the International Monetary Fund, and leading international ratings agencies, among others.

At the same time, Italy's new populist and euro-skeptic government, which was seated in June, has been losing credibility with investors, even though it needs them to keep buying its sovereign bonds in order to pay for its budget and fulfill its promises to voters: a basic income of 780 euros for the poor and the unemployed, the scrapping of cost-saving but unpopular pension reforms, and tax cuts.

A key measure of investor confidence is the spread between the interest rates on Italy's 10-year sovereign bonds and those of their German counterparts.

That differential has been rising steadily this year -- from 130 points on average before the March 4 general election that gave rise to the current government, to around 300 points today. The higher the spread, the more the country has to pay to borrow money and the lower the market confidence in that country.

In a speech on the occasion of World Savings Day on Wednesday, Bank of Italy Governor Ignazio Visco warned that foreign as well as Italian investors have been taking their money elsewhere due to uncertainty over the government's draft budget, its ability to repay its debts, and concerns over a possible Italexit.

"Between May and August, foreign investors sold off 82 billion euros' worth of Italian stocks and bonds" while "Italian investors purchased 18 billion euros' worth of foreign shares", Visco said in the speech, which was tweeted by the Bank of Italy.

If the spread goes unchecked, this will spell trouble for public finances, Visco continued. "The rise (in the spread) registered so far this year means that next year, spending on interest rates will increase by about 0.3 percent of GDP (over 5 billion euros)," he said.

Earlier this month, Tria claimed that "with this budget, we will halve the gap between the Italian and the European growth rate in 2019." It remains to be seen whether the Italian economy will respond as the government expects.

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