Country Report Italy

Outlook for 2008-09

• Silvio Berlusconi's outright victory in the April 2008 general election has given him clear majorities in both houses of parliament. The Economist Intelligence Unit expects his coalition to remain in government beyond 2009.
• The support of the Lega Nord will be crucial to the survival of Mr Berlusconi’s government. Tensions between the regionalist Lega and the rightist Alleanza Nazionale are likely to emerge over fiscal federalism and other issues.
• Under Mr Berlusconi, a shift in emphasis is expected on foreign policy. His preferred approach of bilateral relations with strategically important countries and his lack of tact will make agreeing common EU positions more difficult.
• The fiscal deficit fell to 1.9% of GDP in 2007, but it is expected to edge up towards the Stability and Growth Pact's ceiling of 3% in 2008 and 2009.
• GDP growth is forecast to slow from 1.4% in 2007 to 0.4% in 2008, before picking up modestly in 2009. Inflation (EU harmonised measure) will rise from 2% in 2007 to 3.5% in 2008. In 2009 we expect it ease again, to 2.7%.

Monthly review

• Compared with his two previous spells as prime minister, Mr Berlusconi sounded more cautious and less confrontational in his first weeks in office.
• In his inaugural speeches, Mr Berlusconi reached out to the centre-left in opposition, calling for co-operation on much-needed reforms to Italy’s cumbersome institutional framework.
• Measures to tighten Italy's immigration rules and fight crime, championed by the Lega Nord, have drawn criticism from the EU, the UN and the Vatican.
• The minister of the economy, Giulio Tremonti, is preparing a fiscal consolidation plan aimed at achieving a balanced budget by 2011, one year ahead of the date agreed by the EU's economy and finance ministers on June 3rd.
• In late May the minister of public administration, Renato Brunetta, announced that he was preparing an ambitious plan to boost productivity and improve the functioning of the state bureaucracy.
• The government approved a decree in May containing measures intended to support households' purchasing power, which has suffered as a result of modest wage levels and soaring energy and food prices.
• In the first three months of 2008 GDP rose by 0.5% quarter on quarter, reversing a contraction of 0.4% in the last quarter of 2007, the first fall since the first quarter of 2005.
• In May consumer price inflation stood at 3.7%, according to the EU harmonised index, its highest level in more than a decade.