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Italian govt raising GDP,inflation targets for 2000

ROME: The Italian government said on Wednesday it was raising its GDP and inflation targets for 2000 to 2.5 and 2.0 percent respectively.

The central bank said inflation could come in higher still, at 2.2 percent, but wage growth looked to be under control.

"We are working on the assumption of growth of around 2.5 percent and inflation could be revised to 2.0 percent," Treasury Minister Giuliano Amato said.

The Bank of Italy said in its half-yearly economic bulletin: "Given the hypothesis that the oil price...follows the declining trend implied in futures prices, and that the euro/dollar exchange rate remains around current levels, Italy's average inflation rate should come in at 2.2 percent this year."

The government was previously forecasting 2.2 percent growth and 1.7 percent inflation for 2000. Most recent data show retail inflation muscled to a three-year high of 2.4 percent in February, fuelled chiefly by vertiginous world energy prices.

Italy's fiery trade unions have threatened to abandon wage restraint if the government does not take swift, effective inflation-busting action.

The government has already cut taxes on fuel, and is studying further anti-inflation measures including action to curb car insurance costs and to speed up liberalisation of the fuel distribution system.

BANK OF ITALY CALM ON WAGES

But the Bank of Italy was calm on wage bargaining.

"Wage growth has been broadly in line with the inflation rate also projected in the private service sector, where the alignment was partial or slower in the past," it said.

"Moderation in wage settlements should persist for the whole of the current year..." it added.

Based on national wage contracts already negotiated, "annual growth in industry wages could fall significantly in 2000 towards two percent", the central bank said.

The bulletin said Italian companies had benefited from a reduction in the welfare contributions they were obliged to pay.

"The reduction will also have effects on the increase in per capita labour costs in 2000; these should grow by around half a percentage point less than wages," it said.

Spiralling consumer inflation across Europe has fuelled expectations that the European Central Bank (ECB) will hike rates when it meets on Thursday. Ireland and Spain on Tuesday reported February price growth hitting multiple-year highs.

Finnish inflation sped to 2.7 percent and Denmark's was steady at 2.8 percent, while Portugal's CPI fell for the second month running, according to data released on Wednesday.

The Bank of Italy's bulletin gave a timely reminder of the concerns of the European Central Bank, whose CPI target ceiling is two percent.

Euro zone monetary policy aims to prevent the acceleration in price growth caused by higher oil costs "feeding inflation expectations and provoking wage demands incompatible with the goal of price stability", the bulletin said.-Reuters