by Eric J. Lyman
ROME, July 12 (Xinhua) -- The Bank of Italy estimated the Italian economy would grow just 0.1 percent this year, according to its quarterly economic bulletin, a level that economists said would make it "highly unlikely" Italy will manage to honor its recent budgetary promises with the European Commission.
The Bank of Italy said that lower-than-expected industrial production figures were hurting growth prospects and it blamed that on political worries.
"A heightened uncertainty about budget policy from next year on could generate new turbulence in the financial markets and influence companies' investment plans," the bulletin said.
The bank did predict more robust growth in the coming years, with its models showing the economy growing 0.8 percent next year and 1.0 percent in 2021. But it is the 0.1-percent prediction for 2019 that could cause problems, economists said.
"I don't want to say it's absolutely impossible for the government to reach its budget deficit goal with 0.1-percent economic growth so I will say it is highly unlikely," Giandomenico Piluso, an economist focusing on economic history at the University of Siena, told Xinhua.
Last month, Italy was facing potential sanctions of up to 3 billion euros (3.35 billion U.S. dollars) for failing to rein in its debt enough. It avoided those penalties by promising to close its budget deficit to within 2.04 percent of the country's gross domestic product this year. Earlier in the year, published estimates were that the deficit could reach as high as 3.1 to 3.3 percent of the country's gross domestic product.
"Low economic growth hurts on two fronts," Francesco Daveri, an economist and director of the business administration program at Milan's Bocconi University, said in an interview. "Lower growth reduces tax revenues, which add to the deficit, and it also means gross domestic product is smaller, which means the government must now try to make the deficit a smaller percentage of a smaller overall number."
Italy agreed to the same 2.04-percent figure for 2019 late last year based on economic growth of at least 1.0 percent.
"The 2.04-percent figure proved too ambitious for the government when there was hope that economic growth would be higher," Piluso said.
Italy could still face action from the European Commission if the deficit ends up higher than promised.
The 0.1-percent growth estimate is more or less in line with other prognostications. The government itself is slightly more optimistic, predicting 0.2 percent growth for the year as a whole. But private economists, such as Lorenzo Codogno, founder and chief economist of LC Macro Investors Ltd., and a visiting professor at the London School of Economics, think the economy will contract. Earlier this week Codogno told Xinhua his models showed the Italian economy would contract 0.2 percent for the year.
The economy grew 0.1 percent in the first quarter of the year, ending a technical recession illustrated by back-to-back quarters of negative growth to end 2018. But most observers predict negative growth in the second quarter when those figures are released starting next week.
For his part, Prime Minister Giuseppe Conte has said he believes the economy will surprise observers in the second half of the year with strong growth.
