Italy surprise GDP jump comes as new PM Meloni prepares budget

Italy posted better-than-expected quarterly growth on Monday, a surprise bump for new Prime Minister Giorgia Meloni that staves off -- for now -- an expected recession in Europe's third-largest economy.

In its third quarter, gross domestic product (GDP) grew by 0.5 percent over the second quarter, compared to the slight decline that had been anticipated by the previous government of Mario Draghi.

That rise -- according to preliminary estimates by national statistics institute Istat -- outpaced the Eurozone average of a rise of 0.2 percent and the 0.3 percent Germany published Friday.

Nicola Nobile of Oxford Economics told AFP it was due to a surge in "household consumption, especially in services such as tourism".

"But like other countries in the eurozone, Italy should enter a recession this winter in a context of rising interest rates and inflation," he said.

Regardless, the quarterly surprise comes at the right time for Meloni, leader of the post-fascist Brothers of Italy party, whose first budget is due before the European Commission by the end of November.

On her first visit to Brussels on Thursday, where she will be received by European Commission President Ursula von der Leyen, Meloni is expected to pledge her willingness to curb deficits while maintaining the costly election promises of her right-wing coalition.

Hailing as she does from a historically Eurosceptic party, her election has been closely watched elsewhere in Europe.

The balancing act for Italy -- the first beneficiary of the EU's post-Covid stimulus package -- comes against a global backdrop of rising interest rates, record inflation, the energy crisis and the war in Ukraine.

During the election campaign, she pledged not to swell the budget of a country long plagued by low growth and huge debt.

Still, while the Draghi government forecast a public deficit of 3.4 percent of GDP next year, Giorgia Meloni plans to raise the bar.

According to the Italian press, she is aiming for a deficit of 4.5 percent, or an additional 21 billion euros ($21 billion) to be financed by debt.

A large part of the budget will be devoted to measures aimed at mitigating soaring energy prices for businesses and households, the new government's top priority.

At the helm is Economy Minister Giancarlo Giorgetti, who served as economic development minister under Draghi and is considered a moderate within Matteo Salvini's far-right League.

The coalition's flagship measure -- extending a 15 percent flat tax for the self-employed to those with annual incomes of 100,000 euros, instead of the current 65,000 euros -- could be limited at first and then extended to other incomes.

Funds must also be made available to lower the retirement age, which, in the absence of new measures, would automatically rise from 64 to 67 in 2023, as provided for in a 2011 reform.

Salvini has proposed recovering one billion euros with a six-month hiatus in Italy's controversial basic income -- a minimum payment which goes to Italy's hardest up, including the unemployed, those who cannot work because of disabilities or retirees who live under a basic income level.

Salvini's contentious proposal to save cash is to cut the income for six months to an estimated 900,000 beneficiaries who are capable of working but currently not.

But the last word will go to Giorgia Meloni.

The challenge for the premier will be "to ensure the support of the League, while neutralising in part its leader" Salvini, who could undermine the "serious image" Meloni wants to put forward, said Credit Agricole analyst Sofia Tozy.