Italy's budget sees rising public debt as growth hit by US tariffs

Italy's public debt will only start falling as a proportion of economic output from 2027, the Treasury said in its multiyear budget plan, while economic growth will take a significant hit next year due to US trade tariff policy.

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People sit at outdoor tables in St. Mark's Square in Venice.

The debt - the second highest in the eurozone after Greece's - is targeted at 136.2 per cent of gross domestic product this year from 134.9 per cent in 2024, and seen rising further to 137.4 per cent in 2026.

It will then decline marginally to 137.3 per cent in 2027 and 136.4 per cent in 2028 when it will still be above this year's level, according to the budget document seen by Reuters.

"The debt-to-GDP ratio at such a high level...is an obstacle to future growth and intergenerational fairness, and it must be addressed," Economy Minister Giancarlo Giorgetti said in the document approved by the cabinet late on Thursday.

The budget plan targets the deficit to fall to 3 per cent of national output this year, respecting the European Union's ceiling for the first time since 2019, before the COVID-19 pandemic, and below a previous target of 3.3%.

The improvement is being driven by stronger-than-expected tax revenues, which are expected to grow by 1.2% this year, up from 0.8% forecast in April, and lower debt servicing costs for the euro zone's third-largest economy.