Global Macro Service > Research Briefings > Italy

Populist government’s promises unlikely to be kept

It looks increasingly likely that the Five Star Movements and the Lega will form a government. Possibly as early as tonight. But, while the two leaders have agreed a programme, they have not yet agreed on a prime minister. The talks can still collapse, particularly if the proposed PM does not get the green light from the President. We’re watching developments and will update our forecast accordingly, we currently see GDP growth of 1.4% this year and 1% in 2019/20.

The two parties have agreed on three main economic policies: a change in the social security system, a radical income tax cut and rolling back some of the 2011 pension reform. These measures will cost around €100bn per year (5.5% of GDP). If enacted they would lead to a dramatic deterioration in the fiscal deficit. However, markets and the European Commission are unlikely to be impressed with the proposals, so we expect them to be watered down to meet the 3% limit.

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