downward revision reflects the deterioration of the international context and, in particular, the further weakening of world trade and the rise in oil prices, whose effects on exports and production activities in italy appear to have been compounded by the appreciation of the exchange rate. the rate of inflation, obtained using the consumption deflator, is expected to reach 0. 1 per cent and to rise to 1. 7 per cent in 2017. the current legislation scenario for the two years 2016 - 17 is largely in line with the estimates available today. among the recent assessments by leading private and institutional forecasters, the government ’ s estimate for growth in 2017 is at the lower end of the scale ; however, generally speaking the other forecasts discount the negative effects of the increase in indirect taxes envisaged under the eu ’ s ‘ safeguard clauses ’, which instead are taken into account in the government ’ s unchanged legislation scenario. following the publication in august of the gdp data in the second quarter, the main forecasters revised their growth forecasts significantly downward for 2017 as well. according to both the oecd ’ s interim economic outlook released in september and the average assessments of the analysts polled by consensus economics in the same month, output will grow by 0. 8 per cent in italy both this year and the next. a less favourable outlook was depicted last 15 september by confindustria ’ s centre for studies, which estimated an increase of 0. 7 per cent this year, slowing to 0. 5 per cent in 2017. compared with the current legislation scenario, the government ’ s policy scenario predicts sharply higher growth for next year ( 0. 4 points ) and lower inflation ( 0. 8 points ). the difference is owing to the cancellation of the vat hike envisaged under the safeguard clauses coupled with other interventions the government intends to make in its next budget law. these include public investment in infrastructure, tax incentives for firms that invest, and income support for pensioners. overall, compared to the current legislation scenario the measures planned for 2017 entail an increase in net borrowing amounting to almost half a percentage point of gdp, and a comparable rise in output. the implicit multiplier in this forecast is high, also in view of the normally lagged response of private expenditure to budgetary measures. the government estimates that the absence of any vat increase will contribute 0. 3 percentage points to gdp growth in 2017, a rather strong effect when compared to the econometric estimates based on past

joint session of the fifth committees of the chamber of deputies ( budget, treasury and planning ) and of the senate of the republic ( budget ) preliminary hearing on the 2016 update of the economic and financial document testimony of the deputy director general of the bank of italy luigi federico signorini chamber of deputies rome, 3 october 2016 mr president, honourable members of parliament, i wish to thank the fifth committees of the chamber of deputies and of the italian senate for inviting the bank of italy to give testimony on the 2016 update of the economic and financial document. given the brief time that has elapsed since its publication, i will focus mainly on the macroeconomic outlook and on developments in the public finances this year ; i will then make some preliminary remarks on the finance plans and outlook for the next few years. 1. the macroeconomic outlook the italian and euro - area economies continue to benefit from today ’ s extremely accommodative monetary and financial conditions. the outcome of the uk referendum initially triggered considerable fluctuations on the international markets, which subsequently eased ; a few months on, the effects on the markets have proven limited, in part thanks to the action of monetary authorities. uncertainty persists, however, about the longer - term implications of the uk ’ s decision to rescind its membership of the european union. world trade growth has been slower than expected. in the euro area the recovery is proceeding but at a slower pace than a few months ago. consumer price inflation is inching upwards, but core inflation has yet to record the robust growth required to bring it closer to the inflation objective. according to the ecb staff macroeconomic projections released on 8 september, euro - area real gdp will expand by 1. 7 per cent this year and by 1. 6 per cent in both 2017 and 2018. hicp inflation is projected to average 0. 2 per cent in 2016, and to rise to 1. 2 and 1. 6 per cent in 2017 and 2018 respectively. in italy stuttering economic growth in the second quarter – which had not been foreseen at the start of the year – reflected stagnant domestic demand. lower investment in machinery and equipment was mostly offset by a further increase in that on transport equipment. since the start of the recovery in 2014, investment in italy has been more sluggish both in comparison to other euro - area countries and relative to what is generally the norm when countries are pulling out of a recession. our analyses and findings from business surveys indicate that investment