Italy Politics May 2018

Italy

Italy: Further political uncertainty on the horizon

May 28, 2018

On 28 May, President Sergio Mattarella met with Carlo Cottarelli, a former IMF director, and gave him the task of forming a caretaker government to calm political and market turbulence, approve the budget and lead the country to early elections in 2019. After reaching a coalition agreement in mid-May following complex negotiations, the League and the Five Star Movement (M5S) proposed a list of ministers to the president. However, on 27 May Mattarella refused to appoint Paolo Savona, a Eurosceptic economist proposed by the coalition, as Italy’s new finance minister. This led to the collapse of the coalition agreement and prompted the M5S to threaten to impeach the president. The conflict has notably increased political uncertainty in Italy and the chances of snap elections. While Cottarelli has been given the opportunity to form a government, it is unlikely he will secure the parliamentary majority he needs, since the Five Star Movement and the League hold an absolute majority, and the two political parties have announced they will not support the proposed government. Therefore, the likeliest scenario is early elections later this year.

Whether a short-term technocratic government is formed, or early elections are held quickly, political uncertainty will continue to weigh on Italy's economy. If Cottarelli can garner a parliamentary majority and form a stable caretaker government, then this could calm markets. However, this situation seems unlikely, and the political scenario will continue to be marked by a high degree of uncertainty. Given recent polls, new elections would most likely confirm a populist parliamentary majority, leading to a situation similar to the current one. Political uncertainty, combined with Italy's colossal public debt and already sizeable fiscal deficit, could cause financial distress, especially at a time when the European Central Bank is preparing to reduce its monetary stimulus.

Although the economy firmed up in 2017, underpinned by solid investment and export growth, Italy was the EU’s growth laggard, and its growth potential remains low, weighed down by longstanding problems including sluggish productivity growth, a high tax burden, bureaucracy and the second-highest public debt-to-GDP ratio in the European Union (the highest in absolute numbers). Whether or not a short-term caretaker government is formed, uncertainty will dominate the political landscape in the coming months, clouding the outlook.

Italy GDP Forecast


FocusEconomics Consensus Forecast panelists are still factoring in the latest developments. They see the economy growing 1.4% in 2018, which is unchanged from last month’s forecast. For 2019, panelists expect economic growth to decelerate marginally, to 1.3%.


Author: Massimo Bassetti, Economist

Sample Report

Looking for forecasts related to Politics in Italy? Download a sample report now.

Download




Italy Economic News

  • Italy: Industrial production rebounds in January

    March 8, 2019

    Industrial output jumped 1.7% in January on a month-on-month, seasonally-adjusted basis, contrasting December’s revised 0.7% contraction (previously reported: -0.8% month-on-month).

    Read more

  • Italy: Second estimate confirms economic contraction in Q4 2018

    March 5, 2019

    The Italian economy contracted for the second consecutive quarter in Q4, weighed down by weak domestic demand and by a notable destocking.

    Read more

  • Italy: Manufacturing sector remains in poor shape in February

    March 1, 2019

    The IHS Markit manufacturing Purchasing Managers’ Index (PMI) dipped to 47.7 in February from January’s 47.8, marking the worst reading in close to six years.

    Read more

  • Italy: Inflation ticks up in February on higher food prices

    February 28, 2019

    According to revised data released by the National Statistical Institute (ISTAT) on 15 March, consumer prices rose a revised 0.1% month-on-month in February (previously reported: +0.2% month-on-month), matching January’s increase.

    Read more

  • Italy: Business confidence at four-year low in February

    February 27, 2019

    The National Institute of Statistics (Istat)’s composite business confidence indicator (Clima di Fiducia delle Imprese Italiane, IESE)—which covers the manufacturing, construction, market services and retail sectors—fell to 98.3 points in February from January’s revised 99.1 points (previously reported: 99.2 points), marking the worst reading since February 2015. February’s reading was the result of deteriorating sentiment in the manufacturing, construction and market services sectors, which more than offset improved sentiment in the retail trade sector.

    Read more

More news

Search form