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Italy: Country Economic Forecast: 17 Feb 2012

9 Pages Oxford Economics February 17, 2012 SKU: OFE6823994

According to preliminary data, GDP fell by 0.7% on the quarter in 2011Q4. Although the drop was larger than expected, the overall increase of GDP in 2011 was 0.4%, in line with our forecasts after slight revision to historical data. We now expect GDP to fall 1.6% in 2012 and 0.3% in 2013, before growth returns to positive territory in 2014. The fiscal austerity measures approved so far around €49bn in 2012, according to Bank of Italy estimates are among the main factors behind the protracted decline of GDP. However, they should ensure that the budget deficit drops below 1% of GDP by 2014 from an estimated 3.9% in 2011. The government has also pledged to push through structural reforms, which together with the ECB liquidity provision have helped reduce interest rates on Italian bonds. But these efforts have not spared the government from further rating downgrades, most recently from Moody's in February, as downside risks remain high. The short-term outlook remains bleak. Banks are increasingly reliant on the ECB for funding and surveys suggest credit conditions will tighten even further. As a result, we expect both consumption and investment to fall significantly in 2012, by 1.8% and 4.5% respectively.

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Italy: Country Economic Forecast: 17 Feb 2012

Oxford Economics
February 17, 2012

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