The odds are stacked against Matteo Renzi’s economic ambitions for Italy.
The prime minister needs to see a blistering pace in the second half of this year to meet his goal of a 1.2 percent expansion in 2016. Economists say that’s not happening, spelling trouble for Renzi and the wider euro area.
With Renzi facing a referendum in the autumn that could decide his political future, a stagnant economy and banks hobbled by bad debt are adding to his challenges. While cheaper oil, a weaker euro and unprecedented European Central Bank stimulus helped the Italian economy emerge last year from its longest recession since World War II, that can only take the recovery so far.
‘Italy’s potential growth rate is, as of today, still zero if not slightly negative,’ said Raffaella Tenconi, a London-based economist at Wood & Co. ‘Companies are still too indebted, profitability in the aggregate is very low and the economy overall is in a particularly challenging position having no fiscal or monetary-policy independence.’
Renzi’s government so far is standing by the 2016 growth projection it made in April, despite an economy that stalled in the three months through June. A constitutional reform referendum expected in November is rapidly turning into a test of the 41-year-old premier’s popularity, with unemployment that unexpectedly rose to 11.6 percent in June and a banking crisis that rattled investors large and small. Renzi has said he would quit if he loses the vote.
This post was published at David Stockmans Contra Corner By Lorenzo Totaro, Bloomberg Business ‘ August 22, 2016.
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