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Italy says bond yields don't reflect true financial health

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10th-Oct-2018       
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AFP, Milan :
Fears over Italy's financial health - and the consequent spike in borrowing costs for Rome - do not fairly reflect the situation in the eurozone's third largest economy, Finance Minister Giovanni Tria said Tuesday. The closely-watched spread between the rates on 10-year bonds paid by Italy compared with those offered by Germany, which is a measure of the added risk perceived by investors to holding onto Italian debt, hit the highest level since April 2013 on Monday.
The markets have been shaken by a row between Brussels and Rome, which are at loggerheads after Italy's populist government passed a purse-busting budget last week to the annoyance of the EU. "Recent levels of government bond yields do not reflect the country's fundamentals, and once the economic policy agenda is approved by parliament, the uncertainty that has weighed on government securities in recent months will disappear," Tria told parliament's finance committees.
Italy's new populist government has forecast a public deficit of 2.4 percent of Gross Domestic Product (GDP) next year - compared to the 0.8% forecast by the previous centre-left leadership - before dropping to 2.1 percent in 2020 and 1.8 percent in 2021.
While this was a significant row-back on its initial forecast of a public deficit of 2.4 percent for the next three years, the European Commission has said it is still "a significant deviation from the fiscal path recommended" by Brussels and "therefore a source of serious concern".
Rome has set its 2019 growth forecast at 1.5 percent, followed by 1.6 percent in 2020 and 1.4 percent in 2021.
Tria on Tuesday said the forecasts were on the "cautious" side and "could be largely exceeded" due to the steps taken to encourage investment, which he said would start bearing fruit by next year.
The International Monetary Fund (IMF) was more pessimistic, confirming its growth forecast of 1.2 percent in 2018 and 1.0 percent in 2019.

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