By Giuseppe Fonte and Matteo Negri
ROME (Reuters) -The Italian government on Tuesday cut its growth forecast for this year and next, reflecting an uncertain international outlook, and said public debt was set to rise despite its efforts to curb the annual budget deficit.
In its Economic and Financial Document, the Treasury forecast gross domestic product in the euro zone's third largest economy to grow by 1% this year, down from a 1.2% goal in September.
The latest projection remains significantly above the consensus of most independent bodies, who project Italian growth of around 0.7%.
The government set a GDP growth estimate of 1.2% next year, down from the previous 1.4%.
Economy Minister Giancarlo Giorgetti told reporters the revisions factored in "a complicated international and geopolitical framework," referring to the conflicts in Ukraine and the Middle East.
On the public finance front, the government confirmed its 2024 budget deficit projection at 4.3% of national output.
If achieved, that will mark a sharp reduction from the 7.2% ratio registered in 2023, when Rome far overshot its official target due to the impact of costly fiscal incentive schemes for home renovations.
Giorgetti said these incentives had cost the public purse some 219 billion euros ($237.99 billion) over the last four years. The most generous, the so-called 'Superbonus', allowed homeowners to reclaim from their taxes 110% of the cost of energy-saving building work.
For 2025, the Treasury nudged up its deficit projection to 3.7% from a previous 3.6% goal, while the fiscal gap is seen at 3% in 2026, slightly above the 2.9% target set last year.
Giorgetti said these estimates were forecasts rather than policy targets, as EU fiscal rules are currently being reviewed so the government lacks a clear reference framework to work with.
He said he was ready to intervene with corrective measures to "exactly" meet the previous, slightly tougher deficit targets for the next two years.
DEBT TO CLIMB
Italy's public debt, the second largest in the euro zone as a proportion of output and under close scrutiny by rating agencies, will follow a rising trend through 2026, according to the latest forecasts.
Giorgetti said this was due to the "devastating impact" of the Superbonus, which will continue to weigh on debt despite government curbs on the incentives, as people detract the building work completed from their tax bills.
Debt is estimated at 137.8% of gross domestic product this year, up from the 137.3% reported in 2023. The ratio will rise to 138.9% in 2025 and to 139.8% in 2026.
To keep the trend in check, Giorgetti said he would press ahead with plans to raise around 1% of GDP, or roughly 20 billion euros, from asset sales through 2026.
Despite the commitment to rein in the deficit, the government said it aimed to extend to 2025 temporary cuts to social contributions and tax cuts for people earning up to 28,000 euros per year.
Both measures are currently in place until December this year.
($1 = 0.9202 euros)