Italy‘s economy is in such a fragile state that even a minor recession could be very dangerous, according to a former director at the International Monetary Fund (IMF).
Italy’s coalition government is poised to present its 2019 budget next month, setting out its economic and financial plans for the coming year.
The event is likely to be closely monitored by investors, with many concerned Italy’s euroskeptic leaders will stick to contentious spending plans — and exacerbate the country’s growing budget deficit and massive debt pile.
“The problem with Italy is that I don’t think it can even stand a minor recession,” Italy’s former prime minister designate, Carlo Cottarelli, told CNBC’s Steve Sedgwick at the Ambrosetti Forum in Italy on Saturday.
For a few days in June, Cottarelli — director of the IMF’s fiscal affairs department from 2008 to 2013 and nicknamed “Mr. Scissors” for his pro-austerity views — appeared to be on the brink of becoming Italy’s interim prime minister.
However, a political compromise between the right-wing Lega party and left-leaning Five Star Movement saw these two groups form a coalition government instead.
When asked whether he believed a global recession in the second-half of the year would represent a clear and present danger to Italy, Cottarelli replied: “That is my view.”
“The problem is that we have not started a decline in the debt-to-GDP ratio at a sufficient speed,” he said, before adding: “If the debt is declining and then there is a shock, maybe the debt will stop declining but will not start rising. (But) we are not in that situation yet and that is why we are vulnerable.”
The unveiling of Italy’s economic policies and growth projections for 2019 is likely to be a key moment for its populist government.
That’s because Italy is the euro zone’s third-largest economy and the prospect of an economic collapse in Rome could damage the entire region’s financial and political stability.
