Italy's beleaguered economy will not enjoy a full recovery until the end of the year, Italian Finance Minister Giuilio Tremonti said in remarks released yesterday by the Italian Treasury.
Mr Tremonti, in Washington to meet with finance ministers and central bankers from the Group of Seven countries, said that while battered consumption should improve in the second half of this year, a full rebound will take more time.
"A full recovery is not expected to occur much before the end of the year," Mr Tremonti said in a statement. Growth estimates from the International Monetary Fund last week saw Italy's economy growing 1.1 per cent this year, against an expansion of 2.3 per cent forecast in September.
Italian central banker Antonio Fazio, however, said earlier he was hopeful "things could go better than the IMF scenario".
Inflation, which has been deterring Italian shoppers, should come down in the coming months, Mr Tremonti said.
"Inflation is expected to decline sharply in the months ahead as the impact of the euro change-over fades away, energy prices subside and the recent strengthening of the euro reduces the impact of imported inflation," he added.
Italy's economy was hit hard by a fall in consumer and business confidence and global uncertainty from the Iraq war.
While the world's economic supremos see the light at the end of the tunnel now that the conflict appears to be drawing to a close, Mr Tremonti warned that the effects of the war on the world economy are more profound than they may appear.
"Once the fog of war is dispelled, we will realise that geopolitical uncertainties have deepened global imbalances and fragilities especially, but not only, in the financial markets," he said.
Another risk that policymakers in the world's richest nations will face is the persistence of sluggish growth, which could impede the implementation of structural reforms.
Such reforms, ministers agreed over the weekend, will be crucial to restoring healthier growth in G7 countries, which in turn will help developing nations boost their own economies.
Economic policies should also be crafted to deal with the current slowdown, Mr Tremonti said. IMF Managing Director Horst Koehler said monetary policy should be the G7's "first line of defence."
The Italian finance chief said the eurozone's monetary policy stance was appropriate for now as it maintained price stability and offered "some counterbalance to factors dampening economic activity".
But on the fiscal front, he warned that the budgetary position of European countries will be determined by how long the effect of the Iraqi war is felt. The 12-nation eurozone's largest economies - France and Germany - are currently running deficits of more than three per cent of gross domestic product, exceeding limits set by the European Central Bank in the region's stability pact.
Mr Koehler said that in the current economic climate, European economies should allow for budget flexibility even if their deficits were to increase.
Italy's budget deficit fell last year to 2.3 per cent from 2.6 per cent the previous year.
Mr Tremonti joined other European officials in expressing concern, however, about the United States' current account deficit, which some fear could put hamper the world's recovery, adding that the dollar remained overvalued.