Speech by Angel Gurría, Secretary-General of the OECD
19 February 2015
(As prepared for delivery)
Dear Ministers, ladies and gentlemen,
While we are still recovering from the fact that you took our Chief Economist to be your Finance Minister, it nevertheless gives me great pleasure to present the 2015 Economic Survey of Italy today alongside my dear friend, and former OECD Deputy Secretary-General, Pier Carlo as well as his Ministerial colleagues, Ms. Boschi and Mr. Poletti.
Prime Minister Renzi has clearly chosen a strong team and, over the past year, under his leadership, Italy has continued to make great strides on the tough but necessary path to reform.
To their great credit, the trio of Ministers beside me this morning have been at the vanguard of these efforts and, I am happy to say, the over-arching message of the 2015 OECD Economic Survey of Italy is straight forward: ‘a lot done, a lot more to do’. Let me share with you some of our main findings.
Recent reforms will boost future growth
Italy’s challenge is clear. Even before the financial crisis, the economy was stagnating, with growth in real GDP per capita averaging only 0.7% between 2000 and 2007, compared to the OECD average of 1.7% over the same period. Not least because of the challenging external environment, the economy has been shrinking since 2011, and was flat in the 4th quarter of 2014.
Going forward, we expect to see modest GDP growth in the region of 0.4%[i] this year, or even 0.6% based on the most recent data, and a further acceleration to 1.3%[ii] in 2016[iii]. This sub-par performance has seen Italy trail behind other OECD members when it comes to many quality of life indicators such as jobs, earnings, housing and education outcomes.
In turn, poor levels of education and skills have reinforced the cycle of low growth, and diminished the capacity of citizens to improve their lot. Low or negative growth also makes the national debt burden heavier, thus narrowing the room for manoeuvre to use fiscal policy for investment in the social and economic infrastructure and programmes needed to support inclusive growth.
Now that the ECB is doing its part by loosening monetary policy, the most promising policy avenue open to European governments like Italy is structural reform. And here, Italy has been studiously doing its homework over the past year. The new government has launched an ambitious and broad-based reform programme in the labour market, in product markets, in public administration and in the judiciary, amongst others. This ‘all guns blazing’ approach sends a powerful signal to the public and to investors that ‘Italy is back’! There will be a big multiplier effect on the economy as reforms interact with eachother to have a combined impact that is greater than the sum of their parts.
Of course, reforms take time to have an impact on competitiveness, productivity and growth. But, if the reforms are thoroughly implemented, we expect that within 5 years GDP will be 3.5%[iv] higher than would otherwise be the case had the recent reforms not been enacted. This means an extra 340,000 jobs! After 10 years, we expect the increase in GDP to be nearer 6%! For an economy like Italy’s, that has hardly grown for a decade and a half, this is massive!
‘Jobs Act’ key to getting Italy working again and promoting inclusion
GDP growth can be a useful barometer of an economy’s health, but for most people, their main concern is having a decent job that pays the bills. This is why reforms need to target inclusive growth that ensures everyone can share in the benefits. For too long, too many people have been locked out of Italy’s labour market.
Unemployment has been stuck between 12% and 13% since 2013, and reaches 20%[v] in the South. Nearly one in four young people are in neither employment nor education nor training – the 2nd highest ‘NEET’ rate in the OECD.[vi] Female labour force participation, at 55%, is among the lowest in the OECD, a full 7 percentage points below the average. This illustrates how crucial it was for labour market to be the centre-piece of Italy’s reform efforts.
In this respect, the ‘Jobs Act’ can have a transformational impact if fully implemented. One of the first steps was the introduction of a standard contract for new hires, which will see employment protection rising with job tenure. This greater flexibility will improve the incentives for employers to take on new staff while still leaving Italy with strong employment protection by OECD standards. Clearly, labour reform need not come at the price of social inclusion!
Besides improving incentives for employers to hire, there is a need to help job-seekers find suitable employment. The creation of the National Employment Agency is expected to centralise and streamline the provision of Active Labour Market Policies to do just that. It is important that resources in this area are better targeted, however.
Training programmes should be focused on those who need them most, while assistance should be tailored to the specific needs of the individual. So that incentives are properly aligned, when the unified unemployment benefit system becomes operational, it should require recipients to actively seek work, and to accept a job or training when it is offered.
To improve female labour market participation, there is a need for more flexible working arrangements and more uniform rights to parental leave as well as better availability of affordable, high-quality childcare. In this respect, the government proposal to introduce a tax credit for low-to-middle income families with children is welcome.
Institutional reforms are necessary to improve implementation and enhace public trust
Unfortunately, all these hard-won reform efforts will not yield their expected results if there is insufficient follow-through towards implementation. In the past, this has been Italy’s weak spot. But, here too, the recent signs have been encouraging. Prime Minister Renzi has set up a dedicated implementation unit reporting directly to him. The backlog of secondary legislation is easing.
Efforts are being made to favour structured legislation over emergency decrees. These measures should be continued and complemented with improvements in the clarity of legislation to minimise ambiguities.
As for the next steps, 2015 will see a referendum on important constitutional reforms to restructure the national legislature and improve the delineation of responsibilities between national and sub-national governments. These reforms have the potential to greatly streamline the policy-making process, promote accountability, facilitate implementation and reduce inter-regional variation in regulations.
To maintain wide support for such difficult reforms, it is important that governments and institutions work to win and keep the trust of the people. Few phenomena are as corrosive to that public trust as corruption. The establishment of the Autorità Nazionale Anticorruzione (ANAC), the new anti-corruption agency, was an important step, but it needs stability, continuity, a clarified mandate, political support at all levels, strong powers and authority as well as sufficient resources. We are proud to be working with ANAC in the context of Expo Milano 2015 and are ready to expand our cooperation in the fight against corruption.
Let me conclude by commending the Italian government once more for their decisive efforts to advance an ambitious and much-needed reform agenda so far. It has been challenging, and the journey is not yet finished, but let me assure you that the OECD will continue to stand shoulder-to-shoulder with Italy on the long and winding road to design, develop and deliver “better policies for better lives”.
[i] OECD Economic Survey of Italy 2015
[ii] Both Economic Survey of Italy 2015
[iii] Estimates based on Economic Outlook no. 96 (November 2014), revised to take account of oil price fall and other new data.
[iv] OECD Economic Survey of Italy 2015
[v] All OECD Economic Survey of Italy 2015
[vi] OECD Economic Survey of Italy 2015