by Navid Linnemann

Italy's economy is shrinking

The European Union had already feared what is now the current condition of the Italian economy: The third largest economy in the Eurozone slips into recession.

What are the numbers?

Since the beginning of the populist government in Rome, there have been great doubts in the EU as to whether Italy would comply with the agreements. The capping of new debt at 2% led to conflicts between Rome and Brussels over the past year. In addition, there is a weakening Italian economy, whose performance in the fourth quarter of 2018 fell by 0.2% compared to the previous quarter. With the third quarter already showing negative growth of 0.1%, economists are now talking about a "technical recession".

Why is it?

For the current situation in Italy, the global slack can be blamed. Naturally, problems between the USA and China also affect smaller countries. Furthermore, the Italian government is a part of the downturn in Germany. However, a closer analysis of the figures reveals that Italian exports are not responsible for the decline in economic output. The main cause is rather a decline in domestic demand.

What is feared?

Brussels and Rome had barely agreed in December to meet the 2% target, with Italy's new debt below 2% of GDP. However, this will be more difficult to achieve with a recession, with the economy expected to grow by 1% in 2019. However, the IMF and the central bank in Rome reduced their expectations for the current year to 0.6%.

How is the Italian government responding?

The government, supported by right-wing nationalists and protesters, is also implementing billion-dollar election pledges to be funded with new debt. These include a citizen's wage and an early retirement pension.

But at the government bank, one is confident. There it is said that, "a new economic boom as in the 1960s" is to be expected. How credible the promises of government propaganda are, however, will become apparent. It is noteworthy, however, that while one wants to focus particularly on digitization in order to get the economy back on track, the tilted investment program Industry 4.0 of the previous government is at the same time tipping over again.

Translated from the German original by klimeck consulting.

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