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ECONOMY

IMF raises Italy’s 2015 growth forecast

The International Monetary Fund (IMF) on Monday upped Italy's 2015 growth forecast.

IMF raises Italy's 2015 growth forecast
The IMF has upped Italy’s growth forecast for 2015. Economy: Shutterstock

The IMF said the eurozone's third largest economy was now tipped to grow 0.7 percent this year, raising its initial forecast by 0.2 percent and bringing it into line with the government's official forecast.

The organization also raised its 2016 forecast from 1.1 percent to 1.2 percent.

The revised forecast came the same day Istat, the national statistics agency, announced that Italian exports were up by 9.2 percent in March compared to the same month in 2014, mostly driven by demand from outside the EU.  

However, the IMF said more needed to be done to tackle the country's towering unemployment and debt.

“Italy's economy is emerging slowly from a painful recession,” it said in a report, following the news this month that the country had finally rebooted its economy after nine months of recession and zero growth in the last quarter of 2014.

“Supported by stronger exports and higher spending by firms and consumers, growth is projected at 0.7 percent this year and 1.2 percent next year,” the IMF said.

“But much higher growth is needed to bring down unemployment and debt at a faster pace,” it added.

Italy's unemployment rate rose to 13 percent in March, with youth joblessness up to 43.1 percent — compared to a 22.7 percent rate in the eurozone.

Italy, which only this month emerged from the deepest recession since World War II, had pledged to lower its budget deficit from 3.0 percent to 2.6 percent of GDP in 2015.

But that promise could be hard to keep now that the government has been forced to pay out over €2 billion to pensioners following a court order.

The rebate, which will see over four million retirees receive €500 each on August 1st, will be funded by money originally set aside for measures to ease poverty. 

At the start of May, Italy's constitutional court overturned a key plank of the country's pension reforms, leaving the government facing a mammoth adjustment estimated by premier Matteo Renzi to total €18 billion.

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ECONOMY

How is Denmark’s economy handling inflation and rate rises?

Denmark's economy is now expected to avoid a recession in the coming years, with fewer people losing their jobs than expected, despite high levels of inflation and rising interest rates, The Danish Economic Council has said in a new report.

How is Denmark's economy handling inflation and rate rises?

The council, led by four university economics professors commonly referred to as “the wise men” or vismænd in Denmark, gave a much rosier picture of Denmark’s economy in its spring report, published on Tuesday, than it did in its autumn report last year. 

“We, like many others, are surprised by how employment continues to rise despite inflation and higher interest rates,” the chair or ‘chief wise man’,  Carl-Johan Dalgaard, said in a press release.

“A significant drop in energy prices and a very positive development in exports mean that things have gone better than feared, and as it looks now, the slowdown will therefore be more subdued than we estimated in the autumn.”

In the English summary of its report, the council noted that in the autumn, market expectations were that energy prices would remain at a high level, with “a real concern for energy supply shortages in the winter of 2022/23”.

That the slowdown has been more subdued, it continued was largely due to a significant drop in energy prices compared to the levels seen in late summer 2022, and compared to the market expectations for 2023.  

The council now expects Denmark’s GDP growth to slow to 1 percent in 2023 rather than for the economy to shrink by 0.2 percent, as it predicted in the autumn. 

In 2024, it expects the growth rate to remain the same as in 2003, with another year of 1 percent GDP growth. In its autumn report it expected weaker growth of 0.6 percent in 2024.

What is the outlook for employment? 

In the autumn, the expert group estimated that employment in Denmark would decrease by 100,000 people towards the end of the 2023, with employment in 2024  about 1 percent below the estimated structural level. 

Now, instead, it expects employment will fall by just 50,000 people by 2025.

What does the expert group’s outlook mean for interest rates and government spending? 

Denmark’s finance minister Nikolai Wammen came in for some gentle criticism, with the experts judging that “the 2023 Finance Act, which was adopted in May, should have been tighter”.  The current government’s fiscal policy, it concludes “has not contributed to countering domestic inflationary pressures”. 

The experts expect inflation to stay above 2 percent in 2023 and 2024 and not to fall below 2 percent until 2025. 

If the government decides to follow the council’s advice, the budget in 2024 will have to be at least as tight, if not tighter than that of 2023. 

“Fiscal policy in 2024 should not contribute to increasing demand pressure, rather the opposite,” they write. 

The council also questioned the evidence justifying abolishing the Great Prayer Day holiday, which Denmark’s government has claimed will permanently increase the labour supply by 8,500 full time workers. 

“The council assumes that the abolition of Great Prayer Day will have a short-term positive effect on the labour supply, while there is no evidence of a long-term effect.” 

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