Italy's economy will expand at the slowest pace in five years as "external shocks" such as record oil prices and the strong euro impact consumers and businesses, the Isae research institute said. Europe's fourth-biggest economy will grow by 0.5 percent this year, Rome-based Isae said. That's down from their October forecast of 1.4 percent and would be the weakest rate of growth since 2003.
Oil prices above $100 a barrel have driven euro-region inflation to 3.1 percent, the highest rate in 11 years, and saddled households with higher energy bills and left them with less money to spend. At the same time, exporters are struggling to sell overseas because the euro's 18 percent rise against the dollar in the past year make euro-denominated goods expensive in the U.S., Europe's biggest trading partner.
Italy's Finance Ministry expects growth of 0.6 percent this year, while Confindustria, Italy's largest employers' group, cut its forecast last month to 0.7 percent, a prediction matched by the European Commission.
After lagging behind economic growth in most other EU countries for more than a decade, Italy is likely to be the slowest-growing economy in the region this year.
According to ISAE Italy's budget deficit is expected to rise to 2.7 percent of gross domestic product, more than the 2.6 percent formerly predicted, though still under the European Union ceiling of 3 percent. The deficit narrowed last year to 1.9 percent of gross domestic product, the lowest since 2000, the Rome-based national statistics office said Feb. 29. That's about half the 2006 deficit of 3.4 percent.