Sunday, July 8, 2012
Italian economy to shrink about 2 per cent in 2012
Ignazio Visco head of the Italian Central Bank predicted that the Italian economy will shrink by around 2 per cent this year. Earlier he had forecast a smaller decline of 1.5 per cent. Italy appears to be headed further into recession.
However Visco noted:" If the borrowing rate risk declines, and a shared solution for the crisis is found at the European level, at the end of the year I think we could see light at the end of the tunnel." Italy has been in recession since about the middle of 2011.
Italy's cost of borrowing is increasing again. Yields on ten year bonds rose to over 6 per cent. Increased costs of borrowing exacerbate the debt situation. The increase in borrowing costs may in part be due to increase complaints from some northern countries about the cost of bailing out countries such as Spain and Greece.
Italian Prime Minister Monti remarked:"The increase in the spreads after the EU summit is also due to statements that I consider inappropriate by authorities of northern countries that had the effect of undermining the credibility of the decisions taken by the EU summit," The Finnish Finance Minister had remarked that Finland would prefer to leave the euro zone rather than to continue bailing out financially troubled members. For more see this article.