Economic reforms: what Europe thinks about Italy
Economic reforms: what Europe thinks about Italy

Economic reforms: what Europe thinks about Italy

The country is going in the right direction, but more reforms are expected to better stabilise its national economy

The European Union has just published a new report on the status on European countries' economies. In particular, with this report, the EU aims at pushing its members to "redouble their efforts on the three elements of the virtuous triangle of economic policy: boosting investment, pursuing structural reforms and ensuring responsible fiscal policies. In so doing, Member States should focus on enhancing social fairness in order to deliver more inclusive growth".

As far as Italy is concerned, the report has recognised that "a moderate recovery continued in 2016", with real GDP expected to have grown by 0.9% in 2016, after 0.7% in 2015 (and growth is set to remain around 1% in 2017-2018). Labour market conditions have been improving as well since 2014, "with headcount employment growing by 0.8 % in 2015 and 1.2% in 2016, thanks to labour market reforms, the abolition of regional taxes on permanent employment, and temporary tax incentives for new permanent hires". On top of that, employment is expected to increase further in 2017-2018, although at a more moderate pace.

Although the report recognised that, overall, Italy made some progress in addressing the 2016 country-specific recommendations, "longstanding structural weaknesses and the legacy of the crisis continue to weigh on the economic recovery".

In particular, the report has highlighted the following challenges:

1) Productivity growth remains weak, slowing the correction of Italy's macroeconomic imbalances;

2) High public debt remains a major source of vulnerability;

3) Despite recent gains, the competitiveness gap remains;

4) Non-performing loans hamper banks' ability to support investment;

5) Despite the gradual improvement of the labour market, long-term and youth unemployment remain high;

6) Given its systemic importance, the Italian economy is a source of potential spillovers to the rest of the euro area;

7) The potential of female labour market participation remains largely underutilised;

8 ) Economic growth and efficiency are hindered by the tax system;

9) Education reform is ongoing but tertiary education remains largely underfunded and participation in adult learning and apprenticeships is low;

10) Italy's R&D and innovation performance is below EU average.

However, although challenges are there for every country, Italy is certainly doing well in addressing some of its problems, but more reforms are expected to better stabilise the national economy.

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