Italy Approves Budget Cutting Deficit to 3%

Italy’s cabinet approved a 2025 budget cutting the deficit to about 3% of GDP—below the prior 3.3% target and inside the EU’s 3% ceiling for the first time since 2019—freeing room for tax cuts and higher defense spending under Prime Minister Giorgia Meloni. The government expects the deficit to narrow to about 2.8% in 2026 and to 2.6% and 2.3% in later years, and it forecasts debt around 136.4% of GDP by 2028. Growth is projected to remain weak at roughly 0.5–0.6% in 2025 and about 0.7–0.8% in 2026. Stronger-than-expected tax receipts, job gains, inflation-driven fiscal drag and lower debt servicing costs have improved the fiscal outlook. Hitting or undershooting the 3% threshold would let Italy exit the EU’s excessive-deficit procedure by mid-2026, a year earlier than previously expected. Officials warn that external pressures, including U.S. trade tariffs that have depressed exports (Italian shipments to the U.S. fell sharply in August), still weigh on the recovery.