"Italy's Fiscal Deficit Expected to Exceed 9% of GDP"

National Debt Estimated at 158.5% of GDP

[Asia Economy Reporter Yujin Cho] Italy's fiscal deficit, which was hit hard by the COVID-19 lockdown measures, is expected to soar to around 9% of this year's gross domestic product (GDP).

According to Bloomberg on the 26th (local time), the Italian Ministry of Finance projected that this year's fiscal deficit will reach 9.2% of GDP. Citing a senior Italian government official, the news agency reported that the extension of lockdown measures due to the resurgence of COVID-19 is deepening the public finance crisis.

The national debt is also estimated to be higher at 158.5%, compared to the previously announced forecast of 155.6% (as of the end of last year) in October last year.

The sharp increase in the fiscal deficit is a result of the government implementing large-scale stimulus measures to counter the economic recession caused by the spread of COVID-19.

In Italy's case, the decline is greater and the recovery slower than in the Eurozone (the 19 countries using the Euro), indicating that the economic impact of COVID-19 is more severe. According to data from the Italian National Institute of Statistics, last year's GDP sharply dropped by -8.9%, and this year it is expected to show a recovery of 4.0%. This figure is less than half of the decline.

Meanwhile, political instability is also intensifying. Prime Minister Giuseppe Conte has played the resignation card as a gamble to reorganize the coalition government. According to local media such as the daily La Repubblica, Prime Minister Giuseppe Conte is expected to meet with President Sergio Mattarella to submit his resignation and seek authorization to form a new coalition government.

This political crisis was triggered when Italia Viva (IV), which had been operating the coalition government with the anti-establishment Five Star Movement (M5S) and the center-left Democratic Party (PD), declared its exit due to policy differences. The majority in the Senate, which has a total of 321 seats, collapsed, casting a shadow over government operations.

The coalition government narrowly passed a confidence vote in both the Senate and the Chamber of Deputies on the 18th and 19th, but failed to fill the void left by IV and did not secure an absolute majority in the Senate (161 seats), resulting in a precarious political situation.

After the parliamentary vote, Prime Minister Conte, with the support of M5S and PD, has been trying to persuade moderate opposition lawmakers and independents to join his side, but it is reported that he has not achieved significant results.

Conte, who had been negative about resignation throughout the political crisis, appears to have changed his stance because it currently seems difficult to secure a stable majority in the Senate, and he judged that it would be better to promptly pursue negotiations among political parties to form a new coalition government.

He indicated that if the matter goes to a vote in the current situation, it is very likely to be rejected, which would greatly limit his room for maneuver afterward. Bloomberg reported that it is uncertain whether Conte's resignation announcement will lead to a coalition reorganization.