ROME: The Italian economy will grow by a meagre 0.4 percent this year, the Organisation for Economic Cooperation and Development said on Thursday, raising a previous forecast of 0.2 percent made in November.
The OECD’s outlook remains slightly below those of the International Monetary Fund, the Italian government and its central bank, which all see growth of around 0.6 percent for the euro zone’s third-largest but most sluggish economy.
The rise in gross domestic product seen in 2015 would mark the first year of expansion after a three-year recession. Italy has not posted a single quarter of growth since the middle of 2011.
In a 114 page report on Italy’s economy, the Paris-based think-tank raised its forecast for 2016 growth to 1.3 percent from 1.0 percent.
The recovery will be underpinned by the European Central Bank’s expansionary measures, the depreciation of the euro which will help exports, the plunge in oil prices, and less restrictive fiscal policies by the government, the OECD said.
However it added that “risks are to the downside,” warning the ECB’s bond buying program may fail to revive credit and “market sentiment could turn against Italy with its history of low growth and high debt.”
On public finances, the OECD marginally cut its forecast for Italy’s budget deficit this year to 2.7 percent of gross domestic product from 2.8 percent, below the EU’s 3 percent ceiling and broadly in line with Rome’s 2.6 percent target.
However it said Italy’s public debt, the largest in the euro zone after Greece’s, will continue its upward trend, reaching an all-time record of 133.5 percent of GDP in 2016 from a projected 132.8 percent this year.
The OECD once again recommended that Italy adopt structural reforms to its labour market and judicial system, increase competition, simplify legislation and tackle corruption.
If reforms planned by Matteo Renzi’s government over the next two years are fully implemented they could raise per capita GDP by 6 percent in 10 years’ time, the OECD said.
“In the past, many good reform projects were not fully implemented, depriving the economy of their full benefits,” the report noted.
For now, the OECD estimated that Italy’s potential growth rate which estimates the cruise speed the economy can grow at without generating inflation now stands at just 0.2 percent.