Italy raises growth forecast for 2022, risks from Ukraine crisis still loom large

A customer shops at a market in Rome, Italy, April 2, 2022. (Xinhua/Jin Mamengni)

Higher energy prices stemming from the ongoing conflict between Russia and Ukraine were major factors impacting both the growth and inflation data.

ROME, July 16 (Xinhua) -- The Bank of Italy has raised its economic growth estimates for this year, but warned that the estimates could still be reduced dramatically if natural gas imports from Russia were cut off.

The bank on Friday predicted the economy would grow 3.2 percent this year, up from an estimate of 3 percent in its previous estimate from April. The new estimate was a dose of good news in Italy in a context of surging inflation.

On the same day, the National Institute of Statistics (ISTAT) confirmed earlier estimates showing that prices in June increased by 8 percent year-on-year, a new record high, and by 1.2 percent on a monthly basis.

Higher energy prices stemming from the ongoing conflict between Russia and Ukraine were major factors impacting both the growth and inflation data.

A grocer is seen at a market in Rome, Italy, April 2, 2022. (Xinhua/Jin Mamengni)

ISTAT said energy prices were 48.7 percent higher in June than a year ago, a bigger increase than in any other sector in the latest period. Economists have noted that high energy prices have a knock-on effect across the economy, raising prices for industrial production, agriculture, transportation and in other areas.

In its economic note, the bank said that while the crisis in Ukraine is already having an impact on the country's growth prospects, the implications would be dire if Russia decided to cut off gas supply to Italy entirely. Earlier this week, Italian energy giant Eni said Russia's Gazprom cut its gas delivery to Italy by a third.

The Bank of Italy said Friday that if the supply was cut off entirely, economic growth this year would increase by less than 1 percent, and such a move would also have a big impact on inflation.

A fuel gun is seen at a self-service gas station in Rome, Italy, April 2, 2022. (Xinhua/Jin Mamengni)

Another factor weighing on the Italian economy, according to news reports, is political uncertainty. Olli Rehn, governor of the Bank of Finland, said that European Central Bank (ECB) was taking Italy's political woes into consideration as it prepares for next week's ECB policy meeting.

Rehn also said the energy crisis could hit Italy particularly hard due to the political situation.