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News Analysis: Will Italy's public debt fall in 2016 ?

by Marzia De Giuli

ROME, Feb. 2 (Xinhua) -- Italian Economy Minister Pier Carlo Padoan has said the country's public debt is expected to start falling this year, however, economists say a cut in public debt will depend on growth variables.

With a public debt-to-gross domestic product (GDP) ratio of above 130 percent, Italy has the second-highest public debt in Europe after Greece.

Italy's huge public debt was steady at 2.212 trillion euros (2.418 trillion U.S. dollars) in November 2015, the same as in October, according to the country's central bank.

Weak nominal growth has kept the debt-to-GDP ratio on a rising trend until 2015.

Mazziero Research, an independent financial research firm based in Milan, has estimated a 47-billion-euro drop of Italy's public debt in December compared to November.

"This can be explained by tax collection and accounting adjustments that generally occur by the end of the year," said Maurizio Mazziero, a financial analyst and founder of Mazziero Research.

"But we estimate that Italy's public debt will keep rising to around 2.167 trillion euros in 2015. That is to say there was no reduction of public debt in terms of size last year," he said.

"And we should not be surprised if public debt hits a new all-time high in the first semester of 2016, or 2.250 trillion euros, according to our observatory," Mazziero added.

However, Mazziero said, the good news for Italy is public debt rise will more likely to slow down, as happened last year.

"Italy's public debt increase between 2014 and 2015 was at around 30 billion euros, much lower compared to previous year-on-year increases," the analyst said.

Mazziero noted that Italy's public debt grew by 66 billion euros between 2013 and 2014 and by 80 billion euros between 2012 and 2013.

Though there is an improvement of Italy's public debt in this sense, Mazziero, like other economists, believe the cut in public debt can be only driven by growth.

"Absolute numbers are not indicative. Just look at the United States, which has the highest public debt in the world," said Cesare Imbriani, a political economy professor at Sapienza university of Rome.

The Italian economy grew in all four economic quarters in 2015 for the first time since 2008, and the positive trend is expected to continue in 2016.

Italy's central bank estimated last month that the country's GDP will expand by 1.5 percent in 2016 and 2017, in line with government estimates, after increasing 0.8 percent in 2015.

"Should this growth rates be confirmed, along with the fact that interest rates on Italian sovereign debt are expected to remain low, the public-debt-to-GDP ratio would fall," said Imbriani.

The European Commission, the executive body of the European Union, said in a recent report on public finances that for Italy, "the risks seem high in the medium term" while "there do not seem to be risks of sustainability in the long term" if pension reforms are fully implemented and the primary surplus is maintained at the level of 2.5 percent of GDP in 2017.

In fact, Imbriani said, pension reform and other structural reforms can be a fundamental driver for growth.

Italy has taken action recently in the right direction to re-launch its economy. For example, the Jobs Act labor reform has resulted into positive data, with unemployment hitting a three-year low of 11.3 percent in November 2015, said Imbriani.

Meanwhile, a public administration reform has reduced the number of public companies and cut bureaucracy, helping investments and encouraging an efficient state. The reform will be conducive to Italy's efforts to generate growth and reduce public debt, he said.

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