(Bloomberg) -- Prime Minister Mario Draghi is leaving Italy’s next government, likely led by Giorgia Meloni, a spending cushion of about €9 billion ($8.7 billion) to address the energy crisis.

New economic forecasts presented late Wednesday show better than-expected growth this year, with overall expansion of 3.3% predicted. That will allow Italy’s deficit to narrow to 5.1% of GDP in 2022 and then 3.4% in 2023.

The extra fiscal margin provides a financial buffer for the new administration that is expected to take office by the end of October. As the government starts out, it will face both a worsening winter energy crisis and a tight deadline to approve next year’s budget law.

For 2023, the new forecasts anticipate a significant slowdown in economic growth to 0.6%. That projection is a huge downgrade from the 2.4% prediction made in April. 

The country’s worsening prospects will be a challenge for Meloni, leader of the Brothers of Italy party and head of the right-wing coalition that won the election on Sunday.

She will have to find a way to reconcile the need to keep the country’s mammoth debt and finances in check with promises to protect Italy’s businesses and families from the worst of the energy crunch.

What Bloomberg Economics Says...

“Giorgia Meloni, is set for a baptism by fire. The European Central Bank’s fight against inflation has put the nation’s debt on an explosive trajectory and it could get worse.”

--David Powell and Jamie Rush. For the full report, click here

Italy’s debt is seen at 145.4% of output this year and 143.2% in 2023. While the number remains high, it’s a noticeable improvement from the 150.3% outcome registered last year.

The country’s spending needs remain considerable. The government has spent €66 billion to help people with energy bills, and it’s likely more will be needed.

 

(Retops with details of the economic buffer)

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