IMF lowers Italy’s economic growth forecast on rising uncertainty post Brexit

The International Monetary Fund has lowered the economic growth forecast of Italian economy citing rising uncertainty over Britain’s shocking exit from the European Union. This is expected to weigh on the country’s economic performance.

For next year, the IMF revised its growth forecast for Italy in 2017 to roughly 1 percent, from 1.25 percent previously. The new forecasts are preliminary and final data would be published next week, the IMF said.  Also, it now expects Italy's economy to grow by less than 1 percent this year, compared with an earlier estimate of 1.1 percent.

"While the recovery [from Italy’s recent recession] is expected to continue, increased financial market volatility and higher general uncertainty could weigh on investment and growth in the period ahead," the IMF added in its statement.

Last week, the IMF cuts its growth forecast for the eurozone as a whole because of the expected impact of the UK voting to leave the EU. It now expects the eurozone's economy to grow by 1.6 percent this year and 1.4 percent in 2017. Before the referendum, the IMF had predicted growth of 1.7 percent for both years.

In addition, Italy has an unemployment rate of 11 percent and a banking sector in crisis, with government debt only second to that of Greece. Italian banks are weighed down by massive bad debts, and may need a significant injection of funds.

While praising the banking sector reforms Prime Minister Matteo Renzi had undertaken, the IMF said Italy must take decisive steps to accelerate the banks’ cleanup of their balance sheets, promote the creation of solid banking groups and address the issue of potential mis-selling of certain banks’ securities to retail investors.

Meanwhile, productivity and investment growth are low, unemployment rate remains above 11 percent, and public debt has edged up to almost 133 percent of the gross domestic product, a level that limits the fiscal space to respond to shocks, the IMF added.