Italy’s economy is recovering steadily from the COVID crisis, thanks to the vaccination campaign and generous fiscal support to households and firms. Risks to the outlook are large, including virus variants and the path of global interest rates. To raise growth and employment above pre-pandemic levels, the composition of public spending and taxes must improve. Together with implementation of the National Recovery and Resilience Plan, which includes critical structural reforms and investments, this can help support a faster transition towards a greener, more digitised economy. Realising this will require a demanding set of legislative and administrative reforms. Improving civil justice, tax administration and public investment will be essential to raise income growth.
Growth will rise to 4.5% in 2021 as the vaccine rollout accelerates, and remain strong at 4.4% in 2022. Additional fiscal policy support will boost growth in the second half of 2021 and preserve productive capacity, but will also raise public debt levels. Faster global growth will support the rebound in manufacturing, exports and investment, the latter also benefitting from higher public investment. Consumption will recover as mobility restrictions are lifted and employment growth resumes. High current levels of saving will come down gradually. New jobs, especially for the low-skilled, women and youth, return only in 2022.
Many of Italy's structural challenges - the significant divides across regions, age, gender and productivity, as well as high levels of public debt - have been compounded by the COVID-19 crisis. The key priority for the recovery is to enhance the public administration's effectiveness. This should include, in particular, public investment governance and improved co-ordination and implementation across different levels of government.
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2021 Structural Reform Priorities