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Italy sticks with 1% growth target in 2023 despite weak second quarter

FILE PHOTO: Confidence vote over the 2023 budget, in Rome

By Giuseppe Fonte and Giancarlo Navach

CERNOBBIO, Italy (Reuters) -Itay can still achieve economic growth of 1% this year despite the fall in output reported in the second quarter, Economy Minister Giancarlo Giorgetti said on Sunday.

Italy's gross domestic product (GDP) shrank by 0.4% in the second quarter from the first and its manufacturing sector contracted in August for a fifth consecutive month, according to data released on Friday. GDP grew 0.6% quarter-on-quarter in the first three months of this year.

"The government plans to maintain the forecasts of 1% in 2023, but inevitable external variables are radically changing the picture," Giorgetti said, speaking at The European House-Ambrosetti economic forum.

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Rome is also starting to factor in a 2023 deficit-to-GDP ratio above the current target of 4.5%, a government source said, underscoring the growing impact on state coffers of a tax break offering generous incentives for energy saving home improvements.

The total cost of the so-called Superbonus originally introduced in 2020 is approaching 100 billion euros ($107.73 billion), the source added.

"Thinking about the Superbonus makes me sick to my stomach, it has a negative effect on public accounts, it engulfs economic policy and leaves no room for other interventions," Giorgetti said in Cernobbio.

The government is due to update a raft of economic projections by Sept. 27.

With interest rate hikes by the European Central Bank to curb inflation dampening economic activity, Rome's growth target of 1.5% next year is increasingly at risk, economists say.

As Italy is preparing a difficult 2024 budget, Giorgetti reiterated the commitment to keeping the deficit on a downward trend, leaving little leeway for stimulus.

Rome in April set the deficit at 3.7% of GDP in 2024.

"The budget will obey the purpose of limiting positions of advantage we can no longer afford and reward those who work and create real wealth, especially looking ahead to the main source of wealth production: children," Giorgetti said, indicating there might be tax breaks to help families.

He also renewed calls for new European Union budget rules to include favourable treatment for some spending, such as investments aimed at making the economy greener, and financial aid to Ukraine.

($1 = 0.9282 euros)

(Reporting by Giuseppe Fonte and Giancarlo Navach, additional reporting by Giselda Vagnoni; Editing by Susan Fenton)