March 2, 2020 / 4:28 PM / a month ago

UPDATE 1-Italy to hike deficit goal to 2.4% to tackle coronavirus - sources

* Govt may review deficit target again in April

* Coronavirus seen pushing Italy into recession

* 2019 deficit was much lower than expected (Adds details, quotes, background)

By Giuseppe Fonte and Gavin Jones

ROME, March 2 (Reuters) - Italy will this week raise its 2020 budget deficit goal to 2.4% of national output from the current 2.2% target to fund new measures to help the economy cope with the coronavirus outbreak, senior officials told Reuters.

The three sources, who asked not to be named, said the target may be reviewed again in April when the cabinet approves new economic and public finance targets in its main annual forecasting document.

The Treasury declined to comment.

The 2019 deficit came in at 1.6%, data showed on Monday, the smallest fiscal gap for 12 years.

The much lower-than-expected reading has a positive carryover effect which potentially gives the government more leeway to spend and borrow this year without pushing the deficit above the European Union’s 3% ceiling.

Some members of the coalition, particularly from the 5-Star Movement which has a traditionally anti-austerity stance, may consider the new 2.4% goal too timid.

On the other hand the European Commission may baulk at the prospect of highly-indebted Italy raising the deficit sharply from one year to the next.

Up to Sunday, Italy had registered almost 1,700 confirmed cases of coronavirus since the contagion came to light in wealthy northern regions on Feb. 20, and at least 34 people have died. Updated contagion figures will be released at around 1700 GMT.

A fourth recession since 2008 looks inevitable for the euro zone’s third-largest economy, which was already contracting at the end of 2019.

Rome’s current 2.2% deficit target was set in September on the assumption the economy would grow 0.6% in 2020. That forecast now looks totally unreachable, analysts say.

One of the sources warned that an economic contraction of between 0.4% and 0.9% could not be ruled out for this year.

In considering whether countries comply with the EU’s Stability and Growth Pact, Brussels considers the so-called “structural” deficit, stripped of the effects of growth fluctuations and one-off spending.

Moreover, EU rules allow a temporary deviation from the deficit goals in case of exceptional events, including severe economic recession and major natural disasters.

Economy Minister Roberto Gualtieri told La Repubblica newspaper on Sunday the government would ask parliament to approve an expansionary package worth 3.6 billion euros ($4.01 billion).

The package is likely to include tax credits for companies that reported a 25% drop in revenues, tax cuts and additional funds for the health service, the minister said.

Last week Rome approved an initial, smaller decree containing measures that provide liquidity to companies and workers in the areas worst affected by the outbreak, freezing utility charges, insurance premiums and mortgage repayments. (Reporting by Giuseppe Fonte and Gavin Jones, Editing by William Maclean)

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