Italy’s economy in 2018: Political uncertainty, policy controversy dampens growth

Global Business

Italy has traveled a bumpy road this year.

General elections in March failed to produce a government.

CGTN’s Natalie Carney reports.

It wasn’t until June that a coalition was formed between the populist Five Star Movement and the right-wing nationalist La Lega. These two anti-EU parties promised economic and immigration reforms.

Two major policy changes defined Italy’s new populist government during its first year. Deputy Prime Minister Matteo Salvini’s hard stance on immigration was unlike past governments. And the government’s draft budget was at odds with European Union fiscal policies prompting concerns Italy may leave the eurozone.

While Rome promises to introduce new economic policies, the European Commission worries this will increase the country’s deficit.

“If you put together these reductions in taxes and at the same time the citizenship income, it means that you can not really promise also to the European Commission also to respect the rules. So there is a little bit of a trade-off between following the rules and sticking to the promises the two parties have made to their own electorates,” said Valentina Meliciani, Professor of Industrial Economics at Luiss University.

However, after weeks of negotiations, Italy reduced its 2019 spending plan from 2.4 percent of GDP to about 2 percent, narrowly avoiding a mandate to correct an excessive deficit and potential heavy fines.

Italy also revised its economic growth outlook down to 1 percent.

Meanwhile, a change to the country’s immigration policies brought it more in line with other right-leaning EU neighbors.

In early December, a controversial new anti-migrant law said to bring security back to the country, was passed by the Italian parliament, despite fierce criticism from opponents.

“People with no future, they come to Italy. They concentrate mostly in Rome, in Milan in the big industrial centers. So even if it’s just a few, they are much more visible. I feel threatened by street criminals. And it’s this sense of being unsafe that’s dominating the Italian political scene,” said Alberto Castelvecchi, Professor at Luiss University. 

Yet, some believe Italy’s new populist direction could have far-reaching effects.

“I think what is happening in Italy is inevitably going to affect the entire architecture of the EU and the Euro. It’s a reflection of the changing mood in continental Europe. Italy is one country in Europe where politics is no longer about right versus left. It’s more these days about establishment versus anti-establishment,” said Francesco Galietti, Economist and CEO of Policy Sonar.

And this could well bring even more challenges to the European Commission through 2019.

Bruno Pellegrino discusses the economic situation in Italy in 2018

CGTN’s Rachelle Akuffo spoke with Bruno Pellegrino, a graduate researcher in Business Economics at University of California, Los Angeles, about the economic situation in Italy in 2018.