Italy's GDP could shrink in 2022-2023 if Russia gas flows stop - BOI



MILAN, May 31 (Reuters) - A stop to Russian gas flows could lead to a contraction in Italy's gross domestic product (GDP) on average in 2022-2023, central bank Governor Ignazio Visco warned on Tuesday.

In the text of a speech prepared for the Bank of Italy annual general meeting, Visco highlighted how the Italian and German economies were the worst hit by the Ukraine crisis given their high reliance on Russian gas and large, energy-intensive manufacturing sectors.

Visco said that, prior to the conflict, the Bank of Italy had expected the domestic economy would expand on average by more than 3% in 2022-2023.

"In April, we calculated that the protraction of the conflict in Ukraine could mean about 2 percentage points less growth overall, for this year and the next," Visco said

"However, more adverse developments cannot be ruled out. If the war should lead to an interruption in the supply of gas from Russia, GDP could decline on average over the two years."

Visco warned that economic growth remained key for Italy to sustain the weight of its public debt, adding that the recent widening in yield spreads between Italian and German government bonds drew attention to this element of "structural fragility".
Reporting by Valentina Za, Gavin Jones and Stefano Bernabei; editing by Agnieszka Flak

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