Country Report Italy January 2009

Outlook for 2009-10

• Despite Italy's rapidly deteriorating economy the Economist Intelligence Unit expects Silvio Berlusconi's right-of-centre coalition to remain in government in 2009-10. He has a clear parliamentary majority and the opposition is in disarray.
• 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.
• GDP contracted by an estimated 0.5% in 2008. Our baseline forecast is that it will contract by a further 2% in 2009, before making a modest recovery in 2010. However, there are still major downside risks even to this negative outlook.
• The fiscal deficit is forecast to rise from an estimated 2.8% of GDP in 2008 to about 3.5% of GDP in 2009-10, above the 3% ceiling for euro area countries.
• Much larger deficits cannot be ruled out as our forecast assumes that the economy minister, Giulio Tremonti, will resist pressure for tax cuts to boost the economy and will manage to bring forward EU-supported expenditure.
• Inflation began to fall in September-December and should average 1% (EU harmonised measure) in 2009 and 1.2% in 2010 compared with 3.5% in 2008.

Monthly review

• Despite a sharp deterioration in economic conditions and the government's limited response, Mr Berlusconi still had the support of 58% of Italians, according to a December 2008 opinion poll.
• Mr Berlusconi has benefited from corruption investigations across Italy into local government officials from the main opposition party, the Partito Democratico (PD), led by Walter Veltroni.
• At the end of 2008 Mr Berlusconi announced that an overhaul of the justice system would be one of his priorities in 2009.
• The minister of defence, Ignazio La Russa, told parliament on December 10th that Italy would increase the size of the Italian force in Afghanistan from 2,270 to 2,800 in 2009.
• On January 2nd the Treasury announced that the 2008 public-sector borrowing requirement was 52.9bn, substantially higher than in 2007.
• Tensions between the minister of the economy, Giulio Tremonti, and Italy's central bank governor, Mario Draghi, came to the fore in December.
• The Italian economy sank into recession in the third quarter of 2008 as business investments and exports contracted sharply.

This report covers the following industry codes:
SIC Code: 37
NAICS Code: 336

This report covers the following industry codes:
SIC Code: 37
NAICS Code: 336

• Highlights
• Outlook for 2009-10: Domestic politics
• Outlook for 2009-10: International relations
• Outlook for 2009-10: Policy trends
• Outlook for 2009-10: Fiscal policy
• Outlook for 2009-10: Monetary policy
• Outlook for 2009-10: International assumptions
• Outlook for 2009-10: In focus
• Outlook for 2009-10: Economic growth
• Outlook for 2009-10: Inflation
• Outlook for 2009-10: Exchange rates
• Outlook for 2009-10: External sector
• Outlook for 2009-10: Forecast summary
• The political scene: Mr Berlusconi still rides high in opinion polls
• The political scene: The PDL wins an early regional election in Abruzzo
• The political scene: In focus
• The political scene: Judicial reform high on Mr Berlusconi's agenda
• The political scene: Italy wins concessions on climate change
• The political scene: Italy to send more troops to Afghanistan in 2009
• Economic policy: Public-sector borrowing requirement is up in 2008
• Economic policy: Mr Tremonti is frustrated with central bank governor
• Economic performance: Italy officially in recession in the third quarter of 2008
• Economic performance: Industrial output continued to fall in October
• Economic performance: New-car registrations fell sharply in December
• Economic performance: Business and consumer confidence remain weak
• Economic performance: Unemployment reached 1.53m in the third quarter
• Economic performance: Consumer price inflation slowed to 2.2% in December
• Economic performance: Mibtel ends 2008 almost 50% down on a year earlier
• Data and charts: Annual data and forecast
• Data and charts: Quarterly data
• Data and charts: Monthly data
• Data and charts: Annual trends charts
• Data and charts: Monthly trends charts
• Political structure