Italy’s Midsummer Dream: Shaking Off Sick Man of Europe Label

Italy is working hard to shake off the sick man tag.

Through government tensions, bank rescues and a migrant crisis, business sentiment has improved and the economy managed to maintain consistent growth after multiple false dawns. A report on second-quarter economic expansion this week is expected to top off a streak of encouraging numbers ranging from the labor market to exports.

Yet, the country still has challenges from a drought that hit farming and — longer term — a less favorable monetary policy and elections next year that may produce a hung parliament.

Gross domestic product probably rose 0.4 percent in the three months through June, economists forecast, matching the pace of the previous quarter. That gain would boost expectations that full-year growth could top 1 percent for first time since 2010, helping the economy regain ground lost in the financial crisis of a decade ago.

Italy’s recovery from a record-long recession is still lagging behind growth in euro-area peers Germany, France and Spain, while the economy faces more uncertainty in the coming months. Elections are due in the first half of next year and about the same time the European Central Bank is expected to start rolling back its stimulus, progressively reducing its purchase of Italy’s government bonds.

Finance Minister Pier Carlo Padoan has downplayed the effect of less expansionary monetary conditions, telling SkyTg24 television on Aug. 3 that the economy is strong enough to withstand higher interest rates and bond yields.

According to UniCredit SpA economist Loredana Federico, a 0.4 percent quarterly growth pace would help Italy reduce its debt ratio, which at more than 130 percent of GDP is the second highest in the euro area. “It would certainly allow it to weather the possible difficulties of higher debt-financing costs” as quantitative easing ends, she said.

On the Mend

Last month, the International Monetary Fund said Italy could grow about…

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