Ahead of Italy’s next ratings review by Moody’s, scheduled for November 21, the EU Commission confirmed the exit of infringement procedures in early 2026. On the public finance side, the deficit is expected to fall to 3% of GDP in 2025 (after 3.4% in 2024 and compared with forecasts released in the spring that predicted 3.3%), to 2.8% in 2026 and 2.6% in 2027, driven by an increase in the primary balance against current spending growing above 3% for pensions, government salaries and health services.
Therefore, Italy started to exit the infringement procedure early. A hypothesis confirmed yesterday by Valdis Dombrovskis (pictured), EU Economic Commissioner: “The Italian authorities have repeatedly expressed their intention to ensure that the deficit is slightly lower than 3% of GDP. We need to see the final data for 2025, verified by Eurostat, which will be available in April. If it is below 3%, the decision to exit the infringement procedure will be taken during the next six-monthly monitoring package”, namely in spring 2026.
Meanwhile, Brussels expects GDP growth of 0.4 percent this year, weighed down by a contraction in exports caused by US tariffs and the end of tax incentives on construction. This dynamic mainly depends on investment, which is increasing thanks to Recovery-financed projects and the non-residential construction sector. Exports of goods are expected to decline by 0.6% in 2025, as services increase and imports increase rapidly. The Commission expects recovery to occur in the two-year period 2026-2027, with GDP seen increasing by 0.8% in both years. In the labor market, employment is expected to grow by 1% in 2025 and unemployment will fall to 5.9% in 2027. Government debt is expected to reach 137.2% of GDP in 2027, as the primary surplus is insufficient to compensate for the difference between growth and interest rates and superbonuses continue to weigh. Inflation will remain low in 2025 (1.7%) and 2026 (1.3%) thanks to falling energy prices, and return to around 2% in 2027. Meanwhile, Istat confirmed its initial inflation forecast in October: the national consumer price index for the whole population (Nic), including tobacco, registered +1.2% on an annual basis, down compared to September (+1.6%), and a change of -0.3% on a monthly basis. The so-called shopping basket is falling: prices of food, household goods and personal care are slowing (from +3.1% to +2.1%), as are high-frequency purchases of products (from +2.6% to +2.1%).
Also yesterday, the Governor of the Bank of Italy, Fabio Panetta, spoke at the inauguration of the study year of the Guardia di Finanza Economic-Financial Police School. And he accused the irregular economy in Italy of having significant dimensions and hampering growth. “According to ISTAT estimates, the unmonitored in 2023 will generate added value of 218 billion and 10% of GDP,” stressed Panetta. He added that “almost half of the unobserved economy is located in Northern Italy, and about a third is in Southern Italy”.
However, since 2011, the unobserved economic impact on GDP has decreased by 2 percentage points. The number of temporary workers fell by more than one point, to 10 percent. “Product-related tax evasion has been reduced by almost a third, to 4%”, emphasized the governor.
