By Giuseppe Fonte and Gavin Jones
ROME, April 22 (Reuters) – Italy on Wednesday cut its economic growth outlook and hiked forecasts for the budget deficit and public debt, reflecting surging energy prices and turmoil in the Middle East.
The euro zone’s third-largest economy is headed for growth of 0.6% both this year and next, Economy Minister Giancarlo Giorgetti told reporters after the cabinet signed off on the government’s new budget framework.
The new figures compare with targets of 0.7% and 0.8% respectively which the government set in September.
“We’re not faced by normal circumstances but totally exceptional ones … there’s the war,” Giorgetti said, referring to the U.S.-Israeli conflict with Iran.
He added that given current uncertainty surrounding the projections, “unfortunately in coming weeks they will probably need to be reviewed, adjusted and updated.”
Italy rebounded strongly from the COVID-19 pandemic, helped by costly state-funded building incentives, but has since resumed its customary place among the euro zone’s most sluggish performers.
Even assuming the government’s forecasts are achieved, Italy will post five consecutive years of sub-1% growth from 2023-2027, despite a constant flow of billions of euros from the EU’s pandemic recovery funds.
The economic weakness is weighing on public finances. The International Monetary Fund forecast last week that Italy will overtake Greece this year to post the euro zone’s highest debt-to-GDP ratio, respectively seen at 138.4% and 136.9%.
Giorgetti said the budget deficit is now seen this year at 2.9% of gross domestic product, up from a previous target of 2.8%, and would edge down to 2.8% in 2027, compared with the previous goal of 2.6%.
According to the government’s new estimates the public debt will rise this year to 138.6% from 137.1% in 2025, and remain virtually stable at 138.5% in 2027.
Earlier on Wednesday, national statistics bureau ISTAT confirmed that Italy posted a budget deficit of 3.1% of GDP in 2025, dashing Rome’s hopes of exiting an EU disciplinary procedure this year for its “excessive” deficit.
The deficit figure, contained in ISTAT’s official notification to the European Commission, is lower than the 3.4% deficit-to-GDP reading in 2024 but just above Rome’s target and the European Union’s ceiling of 3%.
An earlier exit from the procedure would have meant that, should the EU decide to ease budget rules to help member states cope with the energy crisis, Italy could have used the additional leeway without facing new disciplinary steps.