The OECD confirmed its economic growth forecasts for Italy. In a table contained today in the report on the Peninsula, the Parisian body resumes the estimates that were released last November 29, on the occasion of the update of its Economic Outlook: GDP is expected to grow by 0.7% this year, similar to that of 2023, and a slight acceleration to +1.2% in 2025.
The unemployment rate would rise to 7.8% this year, two decimal points higher than in 2023, but would then return to 7.6% in 2025. Again according to the OECD, underlying inflation, i.e. the growth in prices per net of energy and food, it would slow to 3.1% this year, from 4.5% in 2023, and to 2.55 in 2025. Finally, the incidence of gross public debt on GDP would remain unchanged at 141.4 % this year, and then reduced to 140.5% in 2025.
Watch out for debt
The OECD recommends Italy to intervene to “consolidate public finances”, taking into account the high level of debt and its trajectory, “which is expected to increase in the absence of changes in policies”. “The public debt, which one percentage of GDP, it is among the highest in the OECD. Given the strong budget pressures on the horizon, tax and spending reforms are needed to help put debt on a more prudent path,” the Paris-based body says in the report on the Peninsula published today. “In the absence of policy changes, the public debt/GDP ratio will increase.
Between 2023 and 2040, public spending on costs related to population aging and debt servicing is expected to increase by around 4.5% of GDP. It is likely that the acceleration of the climate transition and adaptation to climate change – we read – will generate further pressure on spending”. “To bring the debt-to-GDP ratio back to a more prudent path, support future costs and comply with European fiscal rules, a lasting budget adjustment will be necessary. It is necessary to save on public spending – says the OECD -. Future spending reviews, which currently aim to achieve annual budget savings of around 0.2% of GDP, will need to become more ambitious.”
The problem is low productivity
In Italy “the economy faces challenges linked to low productivity growth, low participation in the labor market, particularly of women, and relatively high poverty. SA comprehensive package of reforms will be needed to move towards innovation-led growth while strengthening inclusiveness.” the OECD emphasizes again in the report on the Italian economy, published today.
“The participation of young people and women in the labor market is among the lowest in the OECD area – we read -. The prospects of young people on the labor market could be improved by strengthening the Higher Technological Institutes (ITS Academy), while the participation of women in the labor market could be strengthened by considerably expanding the coverage of early childhood care services, as well as by increasing further incentives for paternity leave”
Pensions chapter
“They represent a large share” of overall public spending, on which, according to the OECD, action must be taken to put the debt/GDP trajectory on a more prudent path”. And in the report on the Italian economy published today, the Paris-based body recommends that in the short term pension spending “could be contained by gradually eliminating early retirement schemes”.
Furthermore, again in the short term, “it would be appropriate to maintain the partial de-indexation of high pensions, and then replace it in the medium term with a tax on high pensions – states the OECD – which are not related to the pension contributions paid. The solidarity contribution could be maintained as long as the relative income of pensioners is aligned with the OECD average.
Focus on banks
As for the banking sector “It is well capitalized and better prepared to withstand shocks than in the past.” The OECD notes this in its report on the economy of the Peninsula. “However – we read – the banking and insurance sectors hold large sovereign debt securities, which require constant monitoring of balance sheet pressures that could result from increases in interest rates or slowing growth”.
The ongoing reforms in the sector of civil justice and public administration in Italy “will be fundamental to increase investments and productivity, we read in the report on the Italian economy, adding that “the long duration of the processes and excessive bureaucracy have slowed down public and private investments”. “It is appropriate to complete the recent reforms aimed at simplifying legal and administrative procedures, increasing capabilities and strengthening incentives related to the performance of judges and public employees – says the Parisian body -. Strengthening the mobility of the latter would reduce their entrenchment in positions characterized by excessive discretion over administrative procedures and, consequently, the risk of corruption”.
Basic income
In Italy, work incentives for beneficiaries of the benefits that replaced the citizen’s income “could be improved by making the withdrawal of the subsidy more gradual in the event of hiring”. The Parisian body recalls that the government has revoked the Citizenship Income and introduced a new social assistance regime (Adi) and an employment support program (Sfl).
“The expansion, at a reduced rate, of the coverage of the inclusion allowance (ADI) to people with very weak prospects on the labor market – we read – would guarantee that the limited funds available for training are targeted at employable people, guaranteeing at the same time that the most vulnerable remain covered by the social safety net.”
Training and Pnrr
“The strengthening of the training system – adds the OECD – would contribute to facilitating the access of vulnerable people to the job market. Lack of skills represents a significant barrier to employment. The PNRR provides funding for a new lifelong learning programme, which should be complemented by rigorous quality control of training providers. To this end – we read – it would be appropriate to introduce a certification system at national level for training providers and expand existing programs that make the payment of training providers subject to the condition that the beneficiaries find stable employment”.
Stop emissions
The recommendation to Italy also comes from the OECD “accelerate the reduction of emissions”. The report on the Peninsula’s economy states that “the low energy intensity that characterizes economic activity and the abundant solar energy resources place Italy in a good position to achieve the climate transition”. “However, to accelerate emissions reduction and adaptation to climate change, existing measures need to be further strengthened and additional policies introduced,” it says.
At a global level, according to the Paris-based body, the pace of emissions reduction has decreased over the last decade, with the recovery of growth and the easing of measures to support decarbonisation. “Achieving the interim target of cutting emissions by 55% by 2030 (compared to 1990 levels) will require increasing the rate at which emissions are reduced.” And in Italy “the setting, by law, of the objective of net zero emissions by 2050 and the establishment of an independent climate committee responsible for evaluating policies and providing assistance could contribute to strengthening the Government’s responsibility”.
Transport in the foreground
In Italy “strengthening public transport and reducing the number of highly polluting cars would help reduce emissions from the transport sector”, the OECD states further, according to which it would be possible to further decarbonise transport “by investing in the railway network, reducing the favorable tax treatment of diesel compared to petrol and introducing financial incentives for the scrapping of old cars, regardless of the purchase of new ones”.
“The use of electric cars could be promoted by increasing the spread of charging stations accessible to the public – states the OECD in the report on the Italian economy – gradually eliminating subsidies for the purchase of cars with internal combustion engines and redirecting support to the purchase of entry-level models of electric cars, as well as aligning taxes on the sale, registration and ownership of cars with the level of emissions produced”.
(Teleborsa)