Italy recorded economic growth of 3.7% in 2022, yet the budget deficit surpassed official forecasts, according to the country’s national statistics bureau, ISTAT.

Growth decelerated from 7.0% in 2021 (upwardly revised from 6.7%), but was consistent with the government’s recent forecast as Italy’s economy fared better than predicted between January and September.

“Private consumption, fixed investment and exports gave a significant contribution to sustained GDP growth,” according to Loredana Federico, the chief Italian economist at UniCredit.

A number of service industries and the construction sector made a further contribution to Italy’s economic growth, ISTAT said, yet the agricultural sector declined.

In terms of public finances, the budget deficit exceeded targets last year, due to a ruling by the European Union's statistics agency Eurostat in relation to how tax credits are classified within state accounts, Reuters reports.

Deficits for the past two years were also upwardly revised.

The 2022 fiscal deficit stood at 8.0% of GDP, compared to an official target of 5.6% forecast in November. Whereas Italy’s deficits from 2021 and 2020 were revised to 9.0% from 7.2% and to 9.7% from 9.5%, respectively.

However, the Italian government predicts the Eurostat ruling will have a minor impact on the 2023 deficit. This is because the country blocked the sale of tax credits from works to improve homes and make them greener, according to a Treasury official this week.

“The impact on 2021-2022 deficit/GDP ratio was expected, given the methodological change introduced by Eurostat, but was not reflected in the dynamics of debt which confirmed an improving downward trend to less than 145% of GDP last year,” Federico went on to say.

Italy’s public debt declined to 144.7% of GDP last year, compared to a government target of 145.7%, ISTAT added.

Moreover, Italy forecasts economic growth of nearly 1% in 2023, up from the 0.6% goal set in November, the Treasury official added.