Italy’s economy is likely to contract 2.3% this year due to plummeting business investment and private consumption, the European Commission said Wednesday, slashing a February forecast for a more modest 1.3% economic contraction.
The euro-zone’s third-largest economy will also contract next year by around 0.5% before expanding 0.8% in 2014, according to the new projections from the European Union’s executive body.
Italy’s public debt should peak next year at 128% and decline modestly the following year, according to the new projections.
The European Union’s new view suggests that more fiscal austerity lies ahead for Italy. The “structural” budget deficit–adjusted for the business cycle and one-off measures–should decline to 0.4% of gross domestic product next year but rise again to 0.9% of GDP in 2014.