People cross the street in Rome Italy, August 29, 2019.
People cross the street in Rome Italy, August 29, 2019. Reuters / CIRO DE LUCA

Italy's economy grew 6.6% last year following a record contraction of 9.0% in 2020, while the budget deficit and public debt came in below government targets, statistics bureau ISTAT reported on Tuesday.

For the third year in a row, Rome's fiscal deficit was significantly lower than official forecasts, as three different governments have overestimated the cost of measures designed to increase welfare provision and support the economy.

The 9.0% contraction in gross domestic product in 2020, caused by extended coronavirus lockdowns, was marginally revised from a previously reported -8.9%.

The rebound last year was stronger than initially expected by the government, which repeatedly revised up its GDP forecast during the course of the year.

The final outturn of 6.6% was above the latest official target of 6.0% made last September and also slightly higher than the most recent indication of 6.5% given by Economy Minister Daniele Franco.

This year, Prime Minister Mario Draghi's coalition government has penciled in growth of 4.7%, but the outlook has been clouded by a surge in energy prices and geopolitical turmoil connected to the war in Ukraine.

Moreover a resurgence of the coronavirus at the start of this year is expected to have crimped growth in the first quarter, getting the year off to a weak start.

In recent comments, ministers have insisted growth will still be above 4%.

Italy's budget deficit came in at 7.2% of GDP last year, ISTAT said, well below the official target of 9.4% and down from the 2020 ratio of 9.6%.

"Growth was stronger than we expected early in the year and that meant tax revenues were more than 20 billion euros ($22.31 billion) higher than we budgeted for," said a government official close to the matter, asking not to be named.

In addition, spending was below target by more than 10 billion euros due to lower outlays on salaries, public procurement, welfare, and subsidies to businesses hit by COVID-19 restrictions, the official said.

Draghi is targeting the deficit to fall to 5.6% of GDP this year.

The public debt - proportionally the highest in the euro zone after Greece's - fell to 150.4% of GDP in 2021 against a government target of 153.5%. That was down from a record high of 155.3% in 2020.

A further reduction to 149.4% is targeted for this year.

($1 = 0.8966 euros)

(writing by Gavin Jones; Editing by Bernadette Baum)