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The economy will grow by 0.9% in 2017 and 1% in 2018. Despite stronger job gains, private consumption growth has weakened following rising uncertainty and declining consumer confidence. The large stock of non-performing loans and the uncertain recovery keep hampering banks' loan disbursements, hindering the recovery of investment. Low growth in Italy’s export markets and geopolitical tensions are restraining exports.
Accommodative euro-area monetary conditions are supporting the moderate recovery. The 2017 budget will appropriately support growth, and a further fiscal easing is assumed in 2018. Nonetheless, lower interest payments will help keep the budget deficit stable. The government is making progress on structural reforms, including active labour market policies, the public administration and the school system. The planned constitutional reform, subject to a referendum in December, would be a further step forward in the reform process and would enhance political and economic governance.
Since 2012, yearly interest payments have declined by more than EUR 15 billion (nearly 1% of GDP), generating fiscal space. The authorities need to use it to raise public investment, enhance targeted programmes to fight poverty and raise labour market participation, especially among women and the young, and encourage innovation.
Economic Survey of Italy (survey page)