Italy’s economy expanded at a slightly faster-than-expected rate of 6.6 per cent last year, while its fiscal deficit came in far below official targets, as investment, consumption and exports bounced back from the shock of the Covid pandemic.

Italy recorded a fiscal deficit of 7.2 per cent of gross domestic product in 2021, well below the government’s own official target of 9.4 per cent, as Prime Minister Mario Draghi’s bet on a significant fiscal stimulus helped support a robust rebound after the 9 per cent GDP contraction in 2020. Italy’s public debt fell to 150.4 per cent of GDP, down from the government’s official target of 153.5 per cent.

The official figures, released on Tuesday, came just a day after Ursula von der Leyen, president of the European Commission, declared that Italy would soon be able to receive its first €21bn tranche from the EU’s Covid recovery fund. “So far, Italy has made good progress in the reforms needed to make its society and economy fit for the future,” von der Leyen said.

Italy is set to be the largest recipient of the EU’s Covid recovery fund, and will potentially be eligible to receive nearly €200bn in grants and concessional loans, though the money will only be released in tranches, and requires Rome to adhere to a time- bound agenda of structural reforms.

As well as positive GDP figures, there had also been a surge last year in housing investment, which had been sluggish for more than a decade, Stefano Manzocchi, a professor of economics at Rome’s LUISS University, said. “We had a very strong rebound of housing investment, construction investment, which has been stagnant in Italy for a long time,” he added.

However, analysts warned that Russia’s invasion of Ukraine — and the impact of the sanctions imposed on Moscow — would put new strains on the Italian economy.

Italy is already starting to feel the effects of higher energy prices, which pushed inflation to 5.7 per cent year on year in February, well above the 4.8 per cent year on year recorded in January, which was already a 26-year-high. Draghi’s The government has announced that it will allocate €8bn to shield the poorest consumers from surging energy prices. But it insisted that the additional spending would not affect its ability to reduce its fiscal deficit to its target of just 5.6 per cent of GDP in 2022.

Italy also remains vulnerable to higher interest rates. “If energy prices boost inflation, and if that triggers a tightening of the monetary policy of the ECB, you are in a worse position than if you don’t have high debt. That is the real risk,” said Italian economist Marco Magnani.

Magnani also said Rome could feel tempted to use EU funds to increase spending on energy subsidies — rather than on productive investment, which he said “is not the best place to put that money.”

Manzocchi added that business confidence would also likely take a hit as a result of current turbulence. “Investment spirit — or the investment confidence — of our entrepreneurs will be in a way damaged by the crisis,” he said