Italy Government Slashes Growth Forecast

[HenryTo]

Growth in the Euro Zone's third largest economy is dismal, and the outlook continues to be dismal as well. The million-dollar question is: Will the ECB slash rates anytime soon?
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Saturday July 16, 6:41 AM

Italy Government Slashes Growth Forecast
The Italian government on Friday approved an economic document predicting no growth this year for the euro zone's third largest economy and a sharp rise in the budget deficit.

Premier Silvio Berlusconi said the document received unanimous approval during a Cabinet meeting, according to the ANSA news agency.

In its four-year forecasting document outlining the 2006 budget, a draft copy of which was obtained by Dow Jones Newswires, the government slashed its 2005 growth target to zero from a 1.2 percent increase forecast in April.

Berlusconi's government, which faces general elections by May, expects the Italian economy to gradually pick up in the second half of this year and to grow by 1.5 percent in 2006 and 2007, the document showed.

Hit by high labor costs and low productivity growth, the Italian economy fell into recession at the beginning of 2005, with gross domestic product shrinking 0.5 percent in the first quarter.

"The fundamental problem of public finances is low growth. For this reason, the economic policy of the years ahead must be above-all focused on growth," said in the document, which is known by its acronym DPEF.

Dismal growth will cause the budget deficit to rise to 4.3 percent of GDP this year, breaking European Union budget rules for the third year in a row, predicted the DPEF, which also serves as the 2006 budget blueprint.

Italy's deficit has already breached the rules underpinning the euro in 2003 and 2004, coming in at 3.2 percent of GDP in both years.

With the deficit rising, Italy's enormous debt is seen edging upwards for the first time in a decade, growing to 108.2 percent of GDP in 2005 from 106.6 percent of GDP in 2004.