After falling sharply in 2020, GDP is projected to expand by 4.3% in 2021 and 3.2% in 2022. Lockdowns and uncertainty are weighing on activity, although government support has mitigated the effects on firms and households. Substantial job creation, especially for the low-skilled, women and youth, will return only in 2022, when an effective vaccine is expected to have been deployed widely, stimulating consumption, and easing precautionary saving. Investment and exports are expected to recover gradually alongside the manufacturing sector. Supportive fiscal policy is resulting in rising public debt levels, but interest rates are projected to remain low. Higher growth is needed to improve the fiscal position in the medium term.
The government’s adjusted budget envisages faster, greener, digitalised and more inclusive growth. Stimulus must be accompanied by continued structural reforms and their effective implementation. The regulatory regime can be simplified, delays in the courts system addressed and worker training outcomes improved. Tax, procurement and spending policy reforms can complement efforts to raise public infrastructure spending capacity. With financial, bankruptcy and competition reforms, these public sector reforms would support the expansion of new and small businesses, raise productivity and reduce informality and persistent inequality.
In recent years, supportive global economic conditions, expansionary monetary policy, structural reforms and prudent fiscal policy supported Italy’s gradual economic recovery. Exports, private consumption and more recently investment drove growth, buttressed by a shift of export industries towards higher value added products. The employment rate has increased by 3 percentage points since 2015 and the health of the banking system has improved.