MNI: EU Growth Outlook Worse Than Assumed - Italy Officials

The current euro exchange rate against the dollar is weighing on Italian growth more than U.S. tariffs on exports, Italian government sources told MNI, warning that the impact may not be fully reflected in economic forecasts for either Italy or the wider EU.

August saw a year-on-year drop of more than 21% in Italy’s exports to the U.S., a source said, referring to Istat data. But other indicators suggest that shipments are also suffering in markets where they compete with Chinese goods.

“We don’t see this growth momentum the ECB talks about,” the official said, adding that consumption and investment in Italy are recovering only very slowly and remain vulnerable to any further deterioration in the international outlook.

In its new macroeconomic framework published last week, the government projected growth of 0.5% in 2025 and 0.7% in 2026.

However, officials warned that after a solid start to the year—with 0.3% growth in Q1, though followed by a 0.1% contraction in Q2—the economy is likely to expand by only around 0.2% in the second half as tailwinds from 2024 fade.

NGEU SET TO END

Italy is not expected to face major difficulties in meeting its 2025 growth target but could easily enter 2026 with a flat economy, sustained mainly by the impact of the NextGenerationEU programme, which is set to end in August 2026. (See MNI INTERVIEW: EU Bond Market Needs More Issuance-ICMA's Hill )

Without the contribution from European funds, Italy’s economy would contract by 0.3% in 2025, a source at Confindustria told MNI.

Asked about this estimate, government officials said they were uncertain about the precise figures but acknowledged that NGEU funds account for the lion’s share of investment and growth, which would otherwise be flat or in negative territory.

Italy’s economy remains well below its potential, and could slow further if current conditions persist, officials said.

Nevertheless, Rome appears to have prioritised fiscal consolidation over growth in its latest macroeconomic framework, aiming to bring the deficit down to 3% and allow the country to exit the EU’s Excessive Deficit Procedure by spring. (See MNI: Italy To Use Extra Revenue To Lower Deficit Below 3% GDP)