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IMF fears possible Italy 'contagion' to weaker European economies

AFP  |  Copenhagen 

The (IMF) said Thursday it feared the consequences of a possible "contagion" of Italy's economic woes to European countries with "weaker macroeconomic fundamentals."

Noting the "four-year high" in Italian sovereign bond yields, the IMF said "spillovers to other markets have been fairly contained." "But there is appreciable uncertainty, and contagion from future stress could be notable, especially for economies with weaker macroeconomic fundamentals and limited policy buffers," the IMF said in its autumn forecast for

is under massive pressure since the on October 23 rejected its 2019 budget in a historic move, giving the ruling populist coalition in until November 13 to present changes.

Failing that, could put into something called the "excess deficit procedure", a complicated process that could eventually lead to a fine of 0.2 percent of the country's GDP.

The -- a coalition of the far-right League and the anti-establishment Five -- plans to run a public deficit of 2.4 percent of GDP, three times the target of its centre-left predecessor.

The coalition's 2019 budget is based on an estimate of annual growth of 1.5 percent -- a figure considered optimistic by the IMF, which has forecast only one percent, and the Commission, which expects 1.2 per cent.

Italian leaders insist the low growth rate is all the more reason to kickstart the through a spending spree, but fears the rising deficit could further feed Italy's exploding debt.

already owes 2.3 trillion euros ($2.6 trillion), a sum equivalent to 131 per cent of its GDP. Even if fails to punish Rome, many assume the markets will.

Italy, as well as the IMF noted, "should prioritise measures that reduce fiscal deficits toward their medium-term targets and lower debt.

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Thu, November 08 2018. 19:10 IST