Italian politicians have been pushing against the European Commission to pass the budget for next year which holds a deficit of 2.4% against the plans. Both parties have been pretty stubborn on their claims, which has been weighing on the market sentiment in the last few months.
Yes, the Italians have finally decided to slash the deficit down to 2.2% but that’s still too high for the European Commission, while for the Italians that is as low as they can get. Their argument is that the higher deficit will help the economy grow faster, which will increase the tax revenues and other incomes, so it will lower the overall debt.
But, the problem is that the Eurozone and the global economies are going through a soft patch while the Italian economy has been performing even worse recently. The Italian trade balance is on a declining trend while retail sales declined by 0.8% and the services sector dipped into contraction, as this month’s numbers showed.
But, worse news comes from the unemployment rate. The unemployment rate had been declining until August bottoming at 9.7% which is still really high compared to other developed countries. But, it jumped back up to 10.1% in September which was revised higher to 10.3% and today’s report showed that the unemployment rate moved higher again to 10.6%.
That is a really high unemployment rate and the CPI (consumer price index) inflation lost 0.1% today. So, the weak economic data is not backing up the Italian Government. Although, if you see it from their point of view, the weakness of the Italian economy asks for a higher deficit to stimulate growth. You can say that both sides are right.