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Italy

Launch of the 2019 OECD Economic Survey of Italy

 

Remarks by Angel Gurría

OECD Secretary-General

Rome, Italy - Monday, 1st April 2019

(As prepared for delivery) 

 

 

 

Dear Minister Tria, Ambassador, Dear Friends,

 

It is my pleasure to once again be in Rome to launch the OECD’s 2019 Economic Survey of Italy. Minister, I wish to thank you for hosting us in your beautiful city and for the support you and your team have provided throughout the preparation of this survey.


Today, the global economy is facing serious headwinds. According to our latest Economic Outlook released earlier this month, global growth is projected to further decrease from 3.6% in 2018 to 3.3% in 2019 and to 3.4% in 2020. Trade and investment growth remain sluggish and the large increase in inequality many countries experienced before the crisis persists.

 

The recovery has stalled

In this complex global economic context, the Italian economy has stalled. The modest economic recovery that the Italian economy experienced between 2015 and the first half of 2018 was powered by supportive global economic conditions, expansionary monetary policy, structural reforms and prudent fiscal policy.


Exports, private consumption and, later, investment flows have driven growth, based on a dynamic manufacturing sector. A shift of export industries towards higher value added products has also contributed to the recovery. And, even if growth has been relatively modest, labour market reforms have helped to raise the employment rate by 3 percentage points since 2015.


These are indeed important achievements. However, the economic slowdown underlines once more the urgency to design and implement policies to revive growth and tackle the economic and social challenges that Italy continues to face.

 

Key policy challenges

At the macro level, Italy’s high public debt (at 132% of GDP) poses a series of important challenges. It limits fiscal policy capacity to address social and economic problems, and poses severe risks to the hard-won stability of the banking system. Reducing Italy’s debt-to-GDP ratio is therefore a priority. This would improve fiscal credibility and help contain the risk premium on government debt. Without sustainable fiscal policy, the room to enhance infrastructure, help the poor and deliver the public services people expect will inevitably narrow.


There are also significant challenges on the social front. Italy’s material living standards, as measured by GDP per capita, are about the same as in the year 2000. Poverty rates more than doubled in the last six years for young and working-age adults, reaching 10%. In spite of the improvements in the labour market, a persistent lack of job opportunities forces a large and increasing number of young people to emigrate, and Italy still has one of the lowest employment rates for women, with Mexico, Greece and Turkey.


Disparities in income and well-being are also large, and follow regional lines more closely than in most OECD countries. These disparities are long-standing and deep-rooted. Currently, the employment rate ranges from over 70% in Bolzano to 40% in Calabria. Italy’s tax and benefit system further contributes to these divides, as for instance child care places are scarcer in lagging regions preventing or discouraging many parents (particularly women) from working.


Another key challenge that we highlight in the Review is the need to make public spending more efficient. Excessive fragmentation of public spending into too many programmes, coupled with insufficient coordination between sub-national and central governments and agencies, leads to ineffective public spending and corruption risks.


These are just a few of the challenges presented in our Survey. They reveal the need to continue and accelerate the reform effort, the central proposal of our Survey.

 

Tackling structural challenges: key recommendations

Tackling Italy’s structural challenges requires a multi-year reform package to achieve stronger and more inclusive growth, and revive confidence in the reform capacity of the country.


The ambitious reform package proposed in this Survey would support stronger employment, improve well-being, raise productivity growth, and, if accompanied by a gradual rise of the primary surplus to above 2%, help to put the debt-to-GDP ratio on a downward path,. Our study makes a series of specific policy recommendations. Let me highlight a few that we consider crucial:


1) Promoting inclusive growth while reducing public debt. How do we do this? Well, first we need to increase Italy’s employment and productivity growth. This is key to raising living standards and it will require enhancing competition in protected markets, such as professional services and local public services; raising inclusive innovation and business dynamics, including through targeted incentives connected to the Industry 4.0 Plan; completing the implementation of the new bankruptcy regime, removing obstacles hampering the growth of SMEs; and enhancing the efficiency of public administration by raising accountability and transparency.


At the same time, parallel efforts should be made to improve the quality of public spending. Public spending reviews incorporated in the annual budget could also help to rationalise spending. In addition, closing the early retirement scheme introduced in 2019 would free large resources (about EUR 40 billion up to 2025 or 2.3% of yearly GDP) that could be used to boost employment and opportunities for young people while improving inter-generational equity.

 
2) Addressing the large social and regional divides. The significant additional funds that the Citizen’s Income allocates to anti-poverty programmes are helping to address social and regional disparities. However, to be effective and avoid creating poverty traps, work incentives need to be strengthened. Lowering the Citizen’s Income benefit, introducing in-work benefits for low-wage workers and simplifying the personal income tax system, while strengthening its progressivity and without reducing tax receipts, would go in this direction.


The success of a guaranteed minimum income scheme hinges on improved public employment services. While the Italian government is finally injecting significant resources into public employment services, they will have to be accompanied by a clear multi-year plan to improve their effectiveness by using profiling tools and investing in IT systems. Moreover, there is large scope to further strengthen coordination among regional public employment services, in order to spread best practices and raise the performance of those that are less efficient.

 
3) Italy should strengthen public investment and the effectiveness of regional development policies. While the level of private investment has started to recover over the past two years, public investment has continued to fall as a share of GDP, reaching 1.8% in 2018, the lowest level in 25 years! Insufficient allocation of funds coupled with poor project management has led to delayed execution and hampered spending. 


Large-scale infrastructure projects are particularly problematic as planning and execution are exceedingly slow and prone to corruption risks.

 
The plan to create a central technical support unit to strengthen public investment planning and execution is therefore both timely and relevant. It is important that initiatives to accelerate infrastructure projects’ planning and execution preserve the power of the anti-corruption authority, so as not to undermine the effective work it has been doing.


In addition, in order to accelerate the spending of national and EU regional development funds and improve project quality at a local level, Italy needs to strengthen the role and expertise of the central government bodies responsible for regional policies, while ensuring they can effectively support local governments.


Better regional development strategies would also benefit the environment. While 64% of urban waste is recycled in the north, this falls to 38% in the south, pointing to a range of capacity and coordination problems. More strategically, improving the governance of cities and metropolitan areas would not only help regional development, but also help to achieve cities with improved access of commuters to jobs and lower energy consumption, pollution and CO2 emissions. Continuing to increase the share of renewable sources in the energy mix will contribute towards reaching Paris Agreement’s targets on climate change.

 

Minister, Ladies and Gentlemen, 


The challenges facing the Italian people may seem daunting, but this Survey shows that by taking the right measures, together we can create a “win-win” situation across regions and generations.  You can count on the OECD to continue working with Italy, and for Italy, in the quest for Better Policies for Better Lives.  Thank you.

 

 

See also:

Press Release:  Wide-ranging reforms needed to ensure Italy’s economic recovery

OECD work on Economy

OECD work with Italy

 

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