ROME, Feb 7 (Reuters) - The global financial crisis is taking a toll on Italy's economy, with GDP expected to fall sharply this year, while the budget deficit and debt are set to rise, the International Monetary Fund said.
In its so-called Article 4 consultations with Italian authorities, posted on its website late on Friday, the IMF confirmed its forecast of a 2.1 percent contraction of GDP in 2009 from a 0.6 percent fall in 2008, 'with risks tilted to the downside'.
'The economic recession is deepening and, while a gradual recovery is expected in 2010, the possibility of a prolonged downturn cannot be ruled out,' it said.
The 2009 budget deficit was forecast at 3.9 percent of GDP, well above the 3 percent EU ceiling, from 2.7 percent in 2008. Debt was expected to rise to 109.4 percent of GDP this year from 105.6 percent.
The IMF said that Italy's financial system remained relatively resilient, with the impact of market turmoil mitigated by prudent banking practices and the relatively low level of indebtedness of households and companies.
'While banks came under pressure, the system as a whole remained solid, and no institution failed or fell short of regulatory requirements,' it said.
'However, vulnerabilities have risen, related to banks' capitalisation, funding, credit quality, profitability, and exposure to central and eastern Europe.'
It added government measures to strengthen financial stability should be implemented promptly.
The high level of public debt -- the world's third largest -- is severely reducing the scope for fiscal stimulus packages, the IMF said, urging the government to enact structural reforms to boost growth potential.
'The economy's recovery ... is likely to be slow and weak, reflecting underlying structural rigidities, lack of domestic competition, and the limited scope for a fiscal response,' it said. Keywords: ECONOMY ITALY/IMF (silvia.aloisi@reuters.com; +39 06 8522 4392; Reuters Messaging: silvia.aloisi.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
In its so-called Article 4 consultations with Italian authorities, posted on its website late on Friday, the IMF confirmed its forecast of a 2.1 percent contraction of GDP in 2009 from a 0.6 percent fall in 2008, 'with risks tilted to the downside'.
'The economic recession is deepening and, while a gradual recovery is expected in 2010, the possibility of a prolonged downturn cannot be ruled out,' it said.
The 2009 budget deficit was forecast at 3.9 percent of GDP, well above the 3 percent EU ceiling, from 2.7 percent in 2008. Debt was expected to rise to 109.4 percent of GDP this year from 105.6 percent.
The IMF said that Italy's financial system remained relatively resilient, with the impact of market turmoil mitigated by prudent banking practices and the relatively low level of indebtedness of households and companies.
'While banks came under pressure, the system as a whole remained solid, and no institution failed or fell short of regulatory requirements,' it said.
'However, vulnerabilities have risen, related to banks' capitalisation, funding, credit quality, profitability, and exposure to central and eastern Europe.'
It added government measures to strengthen financial stability should be implemented promptly.
The high level of public debt -- the world's third largest -- is severely reducing the scope for fiscal stimulus packages, the IMF said, urging the government to enact structural reforms to boost growth potential.
'The economy's recovery ... is likely to be slow and weak, reflecting underlying structural rigidities, lack of domestic competition, and the limited scope for a fiscal response,' it said. Keywords: ECONOMY ITALY/IMF (silvia.aloisi@reuters.com; +39 06 8522 4392; Reuters Messaging: silvia.aloisi.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.