Italy's Budget Stimulus Aims Could Backfire - IMF's Thomsen (Bloomberg)
Last Modified: 10:12 AM, Thu Nov 08, 2018

Italy's plans for an expansionary budget that widens the deficit could end up doing more damage than good for the economy, IMF European Director Poul Thomsen said today. Italy doesn't have the space for fiscal stimulus and should avoid leaning on an artificial boost and instead focus on long-lasting measures, he said. There's even a risk of a negative effect on growth, where budget concerns push yields higher, he said. The unfavorable market response means "the cost to Italian borrowers would go up, and you actually end up slowing the economy." "It needs growth, but it's not a growth that can come through fiscal stimulus," Thomsen said. "There's no fiscal space for that. It has to come through structural reforms, labor market reforms, reforms that increase productivity." For the euro area, the IMF said the headwinds are growing, with "slowing global demand, escalating trade disputes, and higher fuel prices." It sees growth slowing to 1.9% next year and 1.7% in 2020.

Italy's Budget Stimulus Aims Could Backfire, IMF's Thomsen Says
2018-11-08 

By Nick Rigillo

(Bloomberg) -- Italy's plans for an expansionary budget
that widens the deficit could end up doing more damage than good
for the economy, according to a top International Monetary Fund
official.

IMF Europe Director Poul Thomsen said Italy doesn't have
the space for fiscal stimulus and should avoid leaning on an
artificial boost and instead focus on long-lasting measures.

There's even a risk of a negative effect on growth, where
budget concerns push yields higher, he said. The unfavorable
market response means "the cost to Italian borrowers would go up
and you actually end up slowing the economy."

"It needs growth, but it's not a growth that can come
through fiscal stimulus," Thomsen said in Copenhagen on Thursday
as the IMF published its outlook for Europe. "There's no fiscal
space for that. It has to come through structural reforms, labor
market reforms, reforms that increase productivity. That is the
main challenge facing Italy."

For the euro area, the IMF said the headwinds are growing,
with "slowing global demand, escalating trade disputes, and
higher fuel prices." It sees growth slowing to 1.9 percent next
year and 1.7 percent in 2020. Expansion was 2.4 percent in 2017
and is expected to be 2 percent this year.

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