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Italy GDP growth may exceed by 2.5 pc

ROME: The accelerating Italian economy could well grow more than 2.5 percent this year and oil-fuelled inflation appears to be a temporary phenomenon, Treasury Undersecretary Piero Giarda said on Wednesday.

But he told Reuters Television's Briefing Italia programme that higher than expected growth could not automatically generate faster reductions in debt, as the European Commission has urged.

"The proposals the Italian government has made for a gradual reduction of the debt-GDP ratio are honestly the only ones that can be followed," he said.

"Italy has had five years of economic belt-tightening with significant costs, also for growth. It's right to insist on debt reduction but an acceleration could be costly."

The European Commission said last week that Italy's updated stability programme appeared to be in line with the EU's Stability and Growth Pact.

Italy's debt is estimated at 114.7 percent of GDP for 1999 and the government forecasts it at 111.7 percent in 2000, falling to 100 percent by 2003.

Although the trend is downwards, it is still way over the 60 percent debt-GDP ceiling set in the Maastricht Treaty on European monetary union.

Giarda said it was difficult to give precise forecasts for the economy for this year until full 1999 accounts were available - 1999 GDP, debt and deficit data are due on March 1.

But he added "We hope that we will be able to set down a hypothesis of growth that is higher than the one we had expected for 2000, so to go above 2.5 percent.

"If all European economies grow, it is possible that this figure could also rise because there would be a solidarity factor in growth that would be very useful for all."

Shortly after Giarda spoke, the national statistics institute ISTAT released definitive January inflation data, which confirmed expectations of a 2.2 percent year on year CPI rise, the largest rise since 2.3 percent in March 1997.

Oil price rises, which have hit nine-year highs, have piled pressure on consumer prices, but Giarda said he expected that to ease as the year went on.

"Oil price rises are a factor that in a way is destined to run out. There will be a rise in prices but we don't now see the grounds for an inflationary effect, that is a permanent growth on price dynamics...so something we can cope with," he said.

He said that while he expected higher inflation at the start of 2000, it should have fallen significantly by year-end. The government is forecasting a 1.2 percent rise in consumer prices in 2000, after final 1999 inflation of 1.7 percent.

Giarda declined to comment on whether the government would extend tax cuts on petrol designed to offset the pain of the price hikes. "The government will decide by the end of the week," he said.

Giorgio Benvenuto, chairman of the finance committee of Italy's lower house of parliament, said on Tuesday that further tax breaks of 50 lire ($0.025) per litre on fuel were possible.

Rising fuel prices prompted the government to step in with a decree law offering tax breaks that cut the price of petrol for customers in the first two months of this year by 35 lire per litre. That decree law expires at the end of the month.-Reuters