Wednesday, 30 January 2008

Italy: Economy unaffected by govt crisis - IMF sees progress in state finances continuing

(ANSA) - Washington, January 29 - The International Monetary Fund said on Tuesday that the government crisis in Italy was unlikely to affect the ''positive'' direction that its economy has taken recently.

Italy's economy will grow less than expected in 2008, in line with the rest of the euro zone, but not because of political uncertainty, economists at the Washington-based institution said. The IMF's new World Economic Outlook report cut its previous forecast for global growth in 2008 by 0.3% to 4.1%, against the 4.9% posted in 2007. The forecast for euro zone countries was cut from 2.1% to 1.6%.

''We don't expect Italy to be particularly hit within the euro zone. The impact of the economic slowdown will be fairly uniform in Euroland,'' Charles Collyns, deputy head of the IMF's research department, told ANSA.

Referring to the drastic reduction in Italy's budget deficit last year and the downward trend in national debt, he added that Italy had made notable ''progress towards consolidating its fiscal policy''.

''I don't think that what's happened in the last few weeks will damage the positive direction that Italy has taken,'' Collyns continued. IMF chief economist Simon Johnson observed that ''all uncertain political situations are a cause for concern but for us the key factors on which we base our growth forecasts are purely economic''.

International credit rating agencies recently made similar statements, saying they had no intention of changing ratings on Italian debt in the light of the resignation of Premier Romano Prodi.

He said the main factor cutting growth in Italy and Europe this year would be the falling US real estate market and the knock-on effects of the subprime mortgage crisis in European financial markets.

Economy Minister Tommaso Padoa Schioppa said last week that Italy and Europe were well placed to deal with the current turbulence on world financial markets.

But he warned that Europe was not entirely immune and acknowledged that the Italian government's growth forecast of 1.5% for 2008 would have to be scaled back.

The Bank of Italy recently predicted 1% GDP growth for this year and the Confindustria association of industrial employers has put the figure at 1.3%

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