Italian bond yields jump as EU predicts slower growth and higher deficits

Italian bond yields have jumped after the European Commission predicted a more pessimistic outlook for the country's economic than the Italian Government's forecast.

The commission predicted Italy's budget would push its deficit to 2.9 per cent of GDP in 2019, rather than the 2.4 per cent estimated by Rome, and that it would rise to 3.1 per cent in 2020 against Italy's 2.1 per cent estimation – above the bloc's limit.

Its forecast of 1.2 per cent GDP growth in 2019 was also lower than Italy's 1.5 per cent.

Italian bond prices rose after the commission's economic forecast as its 10-year bond yield lifted to six basis points to 3.4 per cent.

But Prime Minister Giuseppe Conte defended Italy's economic forecasts and condemned the “implausible” predictions of the commission.

He said: “There are no grounds for questioning the soundness and the sustainability of our reforms.

“For this reason we consider any other type of scenario for Italy's public accounts to be absolutely implausible.”

Finance minister Giovanni Tria added his own criticism of the commission describing it as a “technical slip”.

Tria confirmed Italy was committed to respecting 2.4 per cent as a top limit for the deficit next year.

The International Monetary Fund produced its own economic outlook today and painted an even more pessimistic picture for Italy.

It said GDP growth would fall to one per cent next year and 0.9 per cent in 2020.

The commission rejected Italy's expansive draft budget plan last month and has given the Government until Tuesday to put forward a revised plan.

Despite Eurozone finance ministers urging the Italians to change the budget plan, Rome has made it clear it has no intention to do so.

The commission could initiate an “excessive deficit procedure” which could potentially lead to fines.