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Italy seen getting weaker boost from EU Recovery Fund cash

FILE PHOTO: Italian PM Meloni holds news conference in Rome

By Giuseppe Fonte and Gavin Jones

ROME (Reuters) - Italy is seen getting considerably less economic boost than it hoped from billions of euros of European Union pandemic recovery funds, EU Commission data showed on Wednesday, despite Rome being among the largest beneficiaries of the initiative.

By 2026 Rome is due to have received 194.4 billion euros ($210.11 billion) from the bloc's so-called Recovery and Resilience Facility (RRF), more than any other state in absolute terms and behind only a handful of countries including Greece, Romania, Croatia and Spain as a proportion of national output.

Successive governments in Rome have presented the RRF cash as the key to unlocking the country's growth potential and modernising its sluggish economy, yet the Commission report projected a smaller impact than Italy's own estimates.

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According to Brussels' "mid-term evaluation" of the RRF, under a best case scenario Italian gross domestic product in 2026 will be just over 2.5 percentage points higher than it would have been without the EU transfers.

That compares with a growth boost of roughly 3.5 points for Spain, which receives only a slightly higher amount of cash in terms of GDP, and almost 4.5 points for Greece.

Italy's latest official estimates had pencilled in a cumulative GDP increase of 3.4 points by 2026.

Apart from Greece and Spain, Italy's growth boost is projected to be less than those of Portugal, Bulgaria, Croatia and Romania.

Even before the RRF, Italy had a chronic problem in spending EU cash in the form of structural funds for its poorer regions, and it is still struggling to put the latest windfall to good use.

It has so far allocated just over 40 billion euros, less than half of the 102 billion euros of RRF transfers secured, according to the government's data base known as Regis, and economists and think-tanks lament a lack of transparency regarding what the money is actually being spent on.

Despite the huge inflows of EU cash, the Italian economy has stagnated on average over the last three quarters, with GDP shrinking 0.3% in the second quarter of last year and rising 0.1% in the third quarter and 0.2% in the fourth.

Over the whole of 2023 Italian GDP rose around 0.7%, according to preliminary data, compared with estimated growth of 2.5% in Spain.

The European Commission expects Italian growth of just 0.7% this year, compared with 1.7% for Spain.

Italy in September set a GDP growth target of 1.2% for 2024, far above the current projections of independent bodies.

($1 = 0.9252 euros)

(Editing by William Maclean)