The Italian government is set to unveil a budget that includes an additional 28 billion euros ($31 billion) in borrowing over the next two years, primarily for defense and energy, which analysts at Goldman Sachs predict will widen the country's deficit and elevate its debt-to-GDP ratio to the highest in Europe.
The new deficit targets for 2027 and 2028 have been raised to 3.4% and 3.2% of GDP, respectively, up from earlier projections. This fiscal expansion comes amid broader concerns about government borrowing across Europe, particularly following turmoil in French debt markets.
Filippo Taddei, a senior economist at Goldman Sachs, indicated that these developments could increase pressure on Italian government bonds ahead of the general election scheduled for December 2027.
The recent selloff in global bond yields has drawn attention to Italy's fiscal situation, with some investors, like Reinout De Bock from UBS, expressing concerns that Italian debt may become a weak link in European sovereign debt. Despite Italy's higher debt levels, some analysts believe its stronger primary balance and political stability may provide a buffer against rising yields.
However, the overall outlook remains cautious as the government navigates fiscal challenges and potential electoral instability