Economic outlook, analysis and forecasts

Italy - Economic forecast summary (June 2015)

 

After a long recession, the Italian economy has started its gradual recovery. Output is projected to grow by 0.6% in 2015 and by 1.5% in 2016. Exports will continue to support growth, but the recovery will broaden to private consumption. Sluggish private investment will be countered by rising public infrastructure spending. Economic growth will result in employment gains and lead to a decrease in the unemployment rate, which will still remain high. Consumer price and wage inflation will remain moderate due to persistently large economic slack.


Fiscal policy should continue to aim for gradual but steady fiscal consolidation, so as not to strangle the incipient economic recovery, while fully respecting EU fiscal rules and reducing the large debt-to-GDP ratio. The government should continue to push forward its comprehensive plan of structural reforms, which will boost confidence and lead to higher sustainable and more inclusive growth. Improving the efficiency of the public administration will be key to raising productivity growth by removing obstacles to firms’ growth and entrepreneurship.


The crisis hit investment especially hard and gross fixed capital formation declined by 30% since 2007. To revive private investment, further action is needed to effectively deal with the still-mounting non-performing loans, which are weakening the banking system’s health and restricting the supply of credit. The planned increase in public infrastructure spending is welcome, but if this investment is to be productive the effectiveness of public spending and procurement will have to improve markedly.

 

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