Critics lambast Renzi’s economic plans

Posted on August 12, 2016

2016 Rio Olympics - Rio de Janeiro, Brazil - 04/08/2016. Italian Prime Minister Matteo Renzi (C) walks with the president of the Italian National Olympic Committee Giovanni Malago (R) during the welcoming ceremony for the country's contingent. REUTERS/Ivan Alvarado FOR EDITORIAL USE ONLY. NOT FOR SALE FOR MARKETING OR ADVERTISING CAMPAIGNS.©Reuters

Matteo Renzi has suffered a setback in his hopes of boosting Italy’s economy ahead of an autumn referendum on which he has staked his political career, as data showed that the country’s growth stalled in the second quarter.

Italy’s unexpectedly weak performance, with data on Friday showing that GDP was flat compared to expectations of a 0.2 per cent gain, has dashed hopes that the eurozone’s third-largest economy was on a steady upswing under the prime minister’s watch. The country’s recent growth streak, which began in early 2015 following a triple-dip-recession, has stopped after five quarters.

    Italy’s performance contributed to slowing growth for the eurozone as a whole. The 19-country currency bloc grew 0.3 per cent on the quarter, according to data that confirmed preliminary estimates in July, although Germany and Greece performed better than expected. Germany posted growth of 0.4 per cent, above economists’ forecasts of 0.2 per cent.

    Mr Renzi has been counting on Italy’s recovery to boost his chances of prevailing in a November referendum on constitutional reform. He has said he will resign if the reform is rejected. 

    Opposition critics immediately seized on the flat GDP, both to lambast the prime minister for his economic policies and also to urge Italians to vote against Mr Renzi in the referendum, in order to push him out of office. 

    “It will be a dark autumn for the government,” Renato Brunetta, the leader of Forza Italia, the centre-right party founded by former prime minister Silvio Berlusconi, said in a statement.
    “Italians will rightly vote ‘No’ in the referendum with their pocket books, they will have no pity [for] Renzi the charlatan.”

    Alessandro di Battista, a senior member of the populist Five Star Movement that is neck-and-neck with Mr Renzi’s Democratic Party in the latest opinion polls, was equally scathing. “Public debt has skyrocketed, GDP is stuck and there are no new jobs. This is Renzi-ism,” Mr Di Battista tweeted, adding the hashtag #iodicono, meaning “I will vote no”. 

    The referendum is forecast to be a tight race, with a large share of undecided voters that is likely to spur a tense and vicious campaign for their support over the next three months, increasing the importance of high-profile economic data in the near future. 

    Mr Renzi did not comment on the poor GDP figures on Friday. The finance ministry sought to play down the importance of the data, releasing a statement
    that said it was “no surprise” that Italy’s growth prospects had deteriorated. The ministry placed the blame squarely on external factors, with a focus on European geopolitical factors such as the Brexit vote, the migration crisis and terrorism.

    “We do not understand the catastrophic forecasts of the opposition,” said Bruno Astorre, a senator from Mr Renzi’s Democratic party, according to Ansa, the Italian news agency. “The international context is very complicated . . . there are no magic wands, but [we need] serious and careful work on reforms.” 

    Public debt has sky-rocketed, GDP is stuck and there are no new jobs. This is Renzi-ism

    – Alessandro di Battista, Five Star Movement

    Italian officials — and some economists — say the pause in the recovery in the second quarter could be temporary. Loredana Federico, an economist at UniCredit, the Italian bank, expects economic growth to pick up again in the second half of the year, with overall growth coming in at 0.9 per cent for the year.

    “This is expected to be just a breather in the recovery of private consumption, probably triggered by a slight deterioration in consumer optimism about future economic prospects,” Ms Federico wrote in a note. “[It] will most likely resume in the coming quarters, providing impulses to economic growth.”

    But others were less confident. “Rather than a further acceleration in the quarters ahead, the cyclical peak is probably already behind us, and growth looks set to slow for some time,” wrote Daniele Antonucci, an economist at Morgan Stanley. 

    The weaker economic growth raises the chances of a fresh flare-up in Italy’s banking crisis, as it will be harder for lenders to slash their piles of non-performing loans. It could also lead to a clash with Brussels, as Italy will find it harder to meet its fiscal commitments under EU rules.

    Mr Renzi has recently floated plans for new fiscal stimulus in the 2017 budget, due in October, but his spending and tax relief options are likely to be limited if he cannot meet the EU commitments. 

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