“The authorities' policies could leave Italy vulnerable to a renewed loss of market confidence,” an International Monetary Fund annual report on the country said yesterday.
“Italy could then be forced into a notable fiscal contraction, pushing a weakening economy into a recession. The burden would fall disproportionately on the vulnerable,” the IMF added.
The Italian economy, the eurozone's third largest, fell into a technical recession at the end of 2018.
The fund expects the Italian economy to grow by no more than 0.6 percent this year, well below the government's own estimate of 1.0 percent.
The European Commission is tipped to lower its Italian growth forecast on Thursday, and slower growth could spell trouble for Italy, where around 20 percent of national output is swallowed up each year by payments on the public debt, the second biggest in the eurozone.
The IMF report praised the coalition government's “objective to improve economic and social outcomes (as) welcome.”
But it added that the only sustainable way of achieving such goals was through “faster potential growth” that would require structural reforms, “a credible fiscal consolidation” and stronger bank balance sheets.
The coalition government of the anti-establishment Five Star Movement (M5S) and the far-right League party was forced to water down its ambitious and costly budget in December to avoid being punished by the EU Commission and financial markets.
The IMF report emphasised Wednesday that Italy “needs to tackle long-standing structural impediments to productivity growth.
“This includes decentralising the wage bargaining regime, liberalising service markets, and improving the business climate.”
Deputy Prime Minister and M5S leader Luigi Di Maio quickly rejected the IMF report, charging that the Fund “has starved people for decades.”
The IMF, Di Maio claimed, “has no credibility to criticise a measure like the citizenship income programme,” the party's plan to introduce a welfare payment of 780 euros a month for Itay's least well-off.