By Giuseppe Fonte and Gavin Jones
ROME (Reuters) -Italy’s new public finance targets to be unveiled on Thursday will show the government committing to more ambitious deficit reduction than previously planned, officials said, while confirming weak growth prospects, hit by U.S. trade tariffs.
Rome is expected to announce that the deficit will fall to the European Union’s 3% of gross domestic product (GDP) ceiling or slightly below this year, 12 months ahead of time and below a 3.3% goal set in April.
The improvement is being driven by stronger-than-expected tax revenue — in turn supported by job growth and inflation-driven fiscal drag — and lower debt servicing costs for the euro zone’s third-largest economy.
A deficit-to-GDP ratio at or below 3% would allow Italy to exit an EU infringement procedure for countries running excessive deficits by mid-2026.
The procedure restricts offending countries’ flexibility with regard to taxation and spending policies, as they must cut their fiscal deficit by a prescribed amount each year.
Italy’s 2.8%-of-GDP deficit goal previously set for next year will also be revised downwards, the officials said, without giving further details.
GROWTH TO REMAIN WEAK, BUT NOT DETERIORATING
The new budget framework will target gross domestic product to grow by 0.5 or 0.6% this year and by around 0.8% in 2026, broadly in line with previous estimates, they said.
Under an unchanged policy scenario the economy would grow by 0.7% in 2026, but the government expects that the positive impact of tax cuts and higher spending to be adopted in the upcoming 2026 budget will provide a modest boost.
Economy Minister Giancarlo Giorgetti said recently that Italy’s previous estimates made in April had already factored in a negative impact from U.S. trade tariffs, meaning no radical downward revision will be needed in this round of forecasts.
Italian exports to the United States fell in August by 21% on annual basis, data from the country’s statistics office ISTAT showed.
The most recent data for the economy as a whole showed Italy’s GDP contracted by 0.1% in the second quarter from the previous three months.
The government’s budget plan will also update Rome’s forecasts for the so-called “tax burden” estimating taxes and social contribution as a proportion of GDP.
This stands at above 42% – higher than the EU average of 40% – despite Prime Minister Giorgia Meloni’s tax-cutting pledges.
With national elections due in 2027, Meloni is looking to cut income taxes in the budget for those earning between 28,000 and 60,000 euros ($70,356.00) per year, politicians have said.
($1 = 0.8528 euros)
(Reporting by Giuseppe Fonte, editing by Gavin Jones)
