Our Privacy Statment & Cookie Policy

All LSEG websites use cookies to improve your online experience. They were placed on your computer when you launched this website. You can change your cookie settings through your browser.

October 8, 2018

Chart of the Week: Italian Budget Splurge still Concerning Investors

by Fathom Consulting.

At the time of writing, the Italian government budget deficit target is 2.4% in 2019, 2.1% in 2020 and 1.8% in 2021. This misses the ECB target of 1.6% each consecutive year. Politicians are hoping to stimulate the country’s lacklustre economy and fulfil pre-election pledges including: the introduction of a guaranteed basic income; the adoption of a flat rate of income tax and the repeal of the previous government’s pension reforms. For the Five Star Movement, the agreement to enlarge the budget deficit and implement their flagship policies is an important step forward, as polls suggest that the party has been losing ground to its coalition partner.

However, Italy’s fiscal space is already limited and, despite running a primary surplus, the government’s debt repayments equate to roughly 4% of GDP. According to Fathom calculations, the coalition’s current spending plans would see government debt hit 134% of GDP in 2020. Markets have taken a dim view of the proposed fiscal expansion and are currently pricing in a nearly 15% probability that the Italian government defaults on its debt within the next five years. Several rating agencies had already revised Italy’s outlook to negative ahead of the budget proposals, and any downgrade to the country’s credit rating could spark a new wave of volatility.

Refresh the chart in your browser | Edit chart in Datastream

______________________________________________________________________

Thomson Reuters Datastream

Financial time series database which allows you to identify and examine trends, generate and test ideas and develop view points on the market.

Thomson Reuters offers the world’s most comprehensive historical database for numerical macroeconomic and cross-asset financial data which started in the 1950s and has grown into an indispensable resource for financial professionals. Find out more.

Get In Touch

Subscribe

We have updated our Privacy Statement. Before you continue, please read our new Privacy Statement and familiarize yourself with the terms.x