Remarks by Angel Gurría,
15 February 2017
(as prepared for delivery)
Dear Minister Padoan,
It is a pleasure to be with you in Rome to present the OECD’s 2017 Economic Survey of Italy.
I should begin by saying that we live in increasingly uncertain times. Today, the global economy is stumbling along at 3% and trade and investment growth is sluggish. We are also witnessing a global rise in inequalities. The earnings of the richest 10% in the OECD jumped from 7 to 10 times the income of the bottom 10% in a generation. And we are seeing a backlash against globalisation as trust in the system collapses.
Despite this challenging global environment, Italy has made important reforms. We now predict the Italian economy will grow at a rate of 1% for 2017 and 2018. Reforms have helped to create 3.2 million new permanent contracts and boost total employment by 2% since early 2015.
Italy’s public finances have also improved, with the deficit expected to have declined to 2.4% of GDP in 2016. This progress has been underpinned by new reforms (such as the Jobs Act and cuts in social security contributions for new permanent contracts), but also by the implementation of reforms approved by previous governments.
Despite these achievements, Italy’s recovery remains weak due to low investment and the challenging international environment I just described. Employment growth has slowed recently, and unemployment remains high, especially among the young (40% of Italy’s youth remain unemployed, which is significantly higher than the OECD average of 13%). Italy’s banking sector suffers from weak profits and the stock of non-performing loans remains large.
The reform process must continue. Italy must focus on its four main challenges: boosting productivity and investment growth; returning the banking sector to health; sustaining job growth and enhancing skills; and reducing poverty. In short, Italy needs to continue its efforts to boost growth that is inclusive, and that leads to a tangible impact on the well-being of all Italians.
Allow me to say a word about each of these challenges.
Italy continues to suffer from low productivity growth, hampering wage and economic gains. Our survey highlights many reasons for this. For example, many Italian firms remain family-owned, and struggle to integrate into global value chains, as well as adopt modern management practices and technology; Italy’s judicial system is slow; and the challenges facing Italy’s banking sector have contributed to a significant drop in investment and its weak recovery. Investment today is still 30% below its pre-crisis peak.
Looking ahead, the Survey recommends that Italy focuses on public administration reform, to support business dynamism as well as making everyday life easier. The Industry 4.0 Plan is ambitious and must be implemented to boost innovation. The competition law that is being discussed in Parliament needs to be approved as soon as possible.
All of these reform efforts need to go hand-in-hand with the continuation of prudent fiscal policies. Public debt has stabilised but remains high. Reducing it is still a priority for Italy's public finances, which remain vulnerable to a rise in interest rates. Public spending could be better focused on effective infrastructure programmes to support growth. And the government must keep fighting tax evasion, which is the Achilles' heel of Italy's fiscal system.
Returning the banking system to health
Italy also needs to continue tackling the challenges facing its banking sector. While the capital ratios of Italy’s banks exceed regulatory standards, poor returns on assets and a large stock of non-performing loans persist. Our Survey recommends that the Italian authorities sustain efforts to restructure the banking sector, and strengthen incentives to encourage banks to dispose of non-performing loans.
Looking ahead, should Italy need to draw on public funds to recapitalise distressed banks, it should make full use of the provisions of EU regulations and compensate retail bondholders for any losses they would incur.
Allow me now to turn to the third issue which is crucial to delivering inclusive growth in Italy: skills. Further efforts are needed to enhance the skills of the Italian youth and adults, if we want to raise productivity.
The Jobs Act and the Buona Scuola reforms go in the right direction. They now need to be implemented carefully, particularly those parts of the reforms that will deliver more effective active labour market policies and job placements for high school students.
When it comes to vocational training at higher education level, participation in Italy remains very low (1% of post-secondary students register in vocational and education training, compared to 18% in OECD countries). The recent experience of Instituti Tecnici Superiori (ITS) has been positive: within one year of graduation, 73% of students find a job matching their studies. All regions could benefit from the experience of the ITS.
Finally, allow me to say a few words about poverty and inequality, which are persistent barriers to inclusive growth. We know that the crisis has had a devastating effect on the well-being of many families with children and young people. For example, while 2.3% of two-children families lived in absolute poverty in 2006, this figure stood at 8.6% in 2015. Children are those at the highest risk of absolute poverty – nearly 11% of under-17s lived in absolute poverty in 2015, compared with 3% in 2006. Poverty among young Italians is also high, at about 10% of people aged 18 to 34 (compared with 2% in 2006).
These figures act as a reminder of the challenges that Italy faces in protecting children and young people from the risk of poverty. And they are challenges that require urgent action. Our survey recommends that Italy develops a national anti-poverty programme, targeting in particular those families with children and young people. I am pleased to note the announcement by the government of a new national programme, Reddito di Inclusione. Its full implementation will be one important step towards breaking the cycles of rising inequality and poverty, and towards delivering an economic recovery that benefits all Italians.
Minister, dear colleagues,
Italy’s fight for inclusive growth must continue. Italy should be recognised for its efforts to lead this fight on the global stage. We are proud to be working with Minister Padoan to advance the inclusive growth agenda in the G7. Under his leadership, we are examining how fiscal levers can be calibrated to reduce inequality and connect people to opportunity, to create growth that everyone can share in.
Minister: count on us to continue working with Italy, and for Italy, in the quest for better policies for better lives.