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New Market Report Now Available: Italy Business Forecast Report Q2 2013

Fast Market Research recommends "Italy Business Forecast Report Q2 2013" from Business Monitor International, now available


Boston, MA -- (SBWIRE) -- 06/24/2013 -- Core Views

Following the February 2013 general election we see three realistic scenarios for Italy's political trajectory over the next few months, only one of which is likely to offer any support to investor confidence.

However, even in a best case scenario we see little hope of significant economic reform, with a full-blown rejection of austerity plans and withdrawal of implicit ECB support the worst case scenario.

Lack of potential significant reform anytime soon seriously jeopardises Italy's long-term growth trajectory, and raises the risks that the public sector debt burden will become unsustainable.

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However, the very high public sector debt levels imply that Italy will eventually be forced to undergo a period of fiscal consolidation over the next decade, which will likely have negative implications for the country's social fabric, regional and global standing and governability.

Major Forecast Changes

We now forecast the Italian economy to contract by 1.3% in 2013, from our previous -0.8% forecast, as we believe the ongoing political deadlock will have negative implications for both consumption and investment. Should policy paralysis last into the second half of 2013 we may well revise down this growth projection further.

Recent political developments have also prompted us to revise up our fiscal deficit and public debt forecasts. We now expect the nominal fiscal deficit to reach 2.0% of GDP in 2013, from an estimated 3.0% in 2012, which implies a less impressive consolidation trajectory, and we expect public sector debt to 125% of GDP, from an estimated 120% in 2012.

Key Risks To Outlook

Given the huge level of political uncertainty, there are main risks to our forecasts. The main ones are that we are underestimating the negative impact on domestic demand, which could mean the growth is much weaker than even our own below consensus forecasts. This would also exacerbate the fiscal and debt problems facing the next government, potentially leading to a more rapid unwind of investor sentiment towards the economy.

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