Italy to keep 2026 deficit below EU ceiling

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Italy to keep 2026 deficit below EU ceiling

Highlights

Italy will reduce its deficit-to-GDP ratio to below the EU's 3% ceiling in 2026, down from 3.1% projected for 2025.
Italy maintains its 2024 deficit target at 2.9%, will raise its 2024 growth estimate to 1% from 0.6%, and targets a 2.8% deficit in 2025.
ISTAT revised Italy's 2023 deficit up by 550 million euros, delaying early exit from the EU's excessive deficit procedure until potentially 2027.

Budget targets and fiscal timetable

As reported by Reuters, the government plans to confirm that Italy's deficit-to-GDP ratio will fall below the EU's 3% ceiling in 2026, from 3.1% in 2025, while it finalises a new budget plan due in the coming weeks.

Officials also expect this year's deficit to remain broadly in line with the 2.9% goal announced in April. Italy's current target for next year is 2.8%, and Prime Minister Giorgia Meloni says the government is also preparing to lift its growth estimate for this year to as much as 1% from 0.6%, reflecting a modest improvement in the economic outlook despite rising geopolitical tensions.

EDP exit remains a key policy objective

Bringing the deficit below the EU threshold is a key condition for Italy to exit the excessive deficit procedure, a long-standing objective for Economy Minister Giancarlo Giorgetti and an important marker of Rome's fiscal consolidation efforts.

That goal does not materialise this year after national statistics bureau ISTAT confirms on Tuesday that the 2025 deficit is 3.1% of GDP, frustrating expectations of a downward revision. ISTAT instead raises last year's deficit by 550 million euros, and Giorgetti says in a statement that Italy will not be able to leave the procedure early this year, though that could happen in 2027.

A spokesperson for the EU says the European Commission must be satisfied that Rome's consolidation is durable before approving an exit. While the procedure normally limits room for tax cuts and spending increases, the political impact is muted ahead of Italy's late-2027 general election because the Commission allows member states more flexibility to address energy costs and raise defence spending through a national escape clause.

Italy wants to use that clause to secure additional deficit space worth 1.5% of GDP, or about 34 billion euros, through 2028. Rome's stated aim of leaving the excessive deficit procedure suggests it plans to use that flexibility over the next two years.

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