Markets focused this year on a possible financial support program for Spain, but analysts say that Italy, bound for a prolonged recession, may also need help in 2013, according to analysts quoted by CNBC .
The government of technocrats led by Mario Monti expects only a negligible contraction in 2013, but Citi analysts forecast an economic decline of 1.4%, which follows a decline of 2.3% this year.
The Organization for Economic Co-operation and Development (OECD) has also worsened its estimates of Italy’s GDP to shrink by 1% next year.
Political uncertainty is adding to economic issues. Monti’s term ends next year, and former Prime Minister Silvio Berlusconi, reluctant to austerity measures, has indicated that he might run again in the 2013 elections.
“We anticipate a baseline scenario that Italy will probably be forced to seek a financial support program in 2013,” said Giada Giani, analyst at Citi.
Giani said that Italy’s economic fundamentals have not improved, despite an improvement in market conditions. The impact of austerity on growth was severe, as the private sector’s ability to absorb the austerity measures by reducing the rate of savings is limited.
Analysts of other banks and research institutes agree that the recession in Italy will be worse than the financial markets have anticipated.
“Austerity measures, focused more on tax increases than spending cuts and difficult credit conditions will impact the economy and the market should take this into account,” said Silvio Peruzzo, an analyst at Nomura.
Mark Willis, an analyst at Roubini Global Economics, believes that the problems in Greece and Spain distracted markets’ attention from structural weaknesses in the economy and the political system in Italy. It is Willis’ opinion that the Monti government passed a series of reforms that the previous government of Silvio Berlusconi would have never occurred. However, a political balance in Italy is hard to predict and no party will secure a majority in parliament, necessary to promote other reforms.
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