| CERNOBBIO, Italy
CERNOBBIO, Italy Italy still believes it can cut its huge public debt this year as a proportion of national output, its economy minister said on Friday, when data confirmed the euro zone's No. 2 economy had stopped growing in the second quarter.
Financial markets are keeping a close eye on Italy's debt, which runs at more than 1.3 times its gross domestic product and risked spiraling out of control in 2011-2012 when investors demanded sky-high risk premiums to refinance it.
Bond purchases by the European Central Bank have since cut yields to record lows, but economic stagnation and a lack of inflation make it hard for Italy to bring its debt down.
"As for the debt-to-GDP ratio, the goal for this year is still that of a reduction," Pier Carlo Padoan told Reuters on the sidelines of the Ambrosetti business forum on Lake Como.
The government's latest forecasts, which will be updated this month, saw this year's debt-to-GDP ratio at 132.4 percent, versus the end-2015 level of 132.6 percent.
However, the Bank of Italy has repeatedly warned Rome may fail to achieve even such a modest decrease, which would be the first drop since 2007 before the international financial crisis set in.
Statistics bureau ISTAT confirmed on Friday a preliminary estimate of zero growth in the second quarter, as shrinking domestic demand offset export growth. [nR1N191001]
"We believe the weak second-quarter GDP growth will not prove to be temporary," BNP Paribas economists said. "Prospects for domestic demand, in particular, are anything but rosy."
To cut the debt Italy is counting on 8 billion euros ($9 billion) in privatization revenues this year, but it has so far only managed sell a 49-percent stake in air traffic controller ENAV, raising 834 million euros.
The bulk of the privatization plan is the sale of a further 30-percent stake in Poste Italiane (PST.MI), the post office Italy privatized in a bourse listing last October.
A Treasury source on Friday said the goal was to complete the sale by year end, depending on market conditions, after media reports mentioned a possible delay to November or December.
Speaking at the forum, Padoan said falling inflation had slowed down debt reduction efforts, but Italy would continue improving its finances and cut its budget deficit next year, without giving any numbers.
The deficit target for 2017 is 1.8 percent of GDP, down from a projected 2.3 percent this year, but both goals are widely expected to be revised up when the government presents its 2017 budget in October.
(Additional reporting and writing by Valentina Za; Editing by Gavin Jones and Louise Ireland)