Italian Prime Minister Matteo Renzi said on Tuesday that the country's economic growth would be about "zero" this year, a sign the euro zone's third-biggest economy is struggling to climb out of its third recession in six years.
Renzi's forecast is far lower than the government's previous prediction for a 0.8 percent increase. Renzi also signalled that Spending Review Commissioner Carlo Cottarelli would likely be leaving his post soon.
The 39-year-old Renzi, who took office in February, has pledged to turn the economy around by tackling stifling red tape and corruption, cutting taxes and reforming inefficient labour market rules while keeping a tight grip on public finances.
Italy needs to slash 20 billion euros in spending next year to keep its deficit at or below the EU deficit limit of 3 percent of output while making labour-tax cuts and maintaining recent income-tax reductions.
Renzi said spending Cottarelli, a former International Monetary Fund official hired by Renzi's predecessor Enrico Letta, asked three months ago to leave his post for personal reasons.
Numerous Italian media reports have suggested serious tensions between Renzi and Cottarelli over how to cut spending and there has been widespread speculation that he would leave early.
However the prime minister said he asked Cottarelli to stay on until next year's budget was presented in October.
Since taking office, Renzi has tried to persuade European Union leaders to shift policy away from austerity and toward more investment. Italy will press its case for a switch in EU fiscal policy when the region's finance ministers meet in Milan on Friday and Saturday.
STATISTICS REVISIONS
Renzi may get some help to keep the deficit in line this year and next from a revision to the calculation of Italy's gross domestic product, though the premier said he expects the effect to be minimal.
Statistics office ISTAT said on Tuesday that it had revised gross domestic product figures for 2011, and as a result the ratio of the budget deficit to GDP fell to 3.5 percent from the originally reported 3.7 percent.
The revision came after a series of methodological changes, which ISTAT said added 3.7 percent to total GDP for 2011.
The GDP change will improve Italy's deficit-to-GDP ratios in subsequent years as well, an ISTAT spokesman said, although he could not say by how much.
He also cautioned that changes to the way the deficit is calculated might either increase or counter the benefits from the higher GDP in calculating the deficit-to-GDP ratio.
Under the new public finance calculations, the size of the public sector is increased to include numerous new bodies and the impact of debt-swap operations carried out by the Treasury is no longer counted as part of the budget deficit.
In 2012 and 2013, the deficit-to-GDP ratio came in at exactly 3.0 percent, the ceiling imposed by European Union budget rules.
In 2013, the deficit was pushed up by 0.2 percentage points by costs incurred on debt swaps. That effect will be stripped out by the revisions to be published on Sept. 22.
The government has committed to keeping the deficit within the 3 percent ceiling this year despite increased pressure on public finances as a result of Italy's prolonged economic crisis.
On Sept. 22, ISTAT will issue revisions to the deficit-to-GDP ratios for each year from 2009-2013.
Before the end of this month the Bank of Italy will issue revisions to Italy's debt-to-GDP ratio. At 132.6 percent of GDP in 2013, that ratio is currently the second highest in the euro zone after Greece's. All else being equal, the upward revisions to GDP should slightly lower the debt-to-GDP ratio.
The revisions to GDP increased the 2011 level by 59 billion euros to 1.64 trillion euros from 1.58 trillion, ISTAT said.
The changes included new ways of calculating spending on research and development and armaments, counted some illegal activities and made a series of complex changes to statistical sources and accounting norms. (Reporting by Gavin Jones; Editing by Larry King)
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