After +1% in 2023 Italy’s GDP is expected to grow by 0.7% in 2024 and then rise to +1.2% in 2025. This is what the OECD estimates in the Economic Outlook published today, underlining that “the high inflation of the last two years has eroded real incomes, financial conditions remain rigid and most of the exceptional fiscal support linked to the Covid-19 crisis and energy has been withdrawn, weighing on private consumption and investments.” The expected recovery in real wage growth and the increase in public investments linked to the Next Generation Eu, underlines the international organization, “will only partially compensate for these obstacles”.
Recent data “indicates a modest growth in the short term. While consumer confidence has improved in recent months, manufacturing production, retail sales and business sentiment remain weak. Despite the slowdown in growth in 2023, the unemployment rate remains historically low and growth in collectively negotiated wages has recovered and should support household incomes and private consumption in the coming quarters.”
Deficit/GDP will reduce but remain above 3% until 2025
Italy’s deficit/GDP ratio “will reduce but will remain above 3% until 2025”. The debt-to-GDP ratio “is high” and “there are substantial spending pressures due to investment needs and an aging population.” To address future spending pressures, “large and sustained fiscal adjustment over several years will be needed to address future spending pressures, while bringing the debt-to-GDP ratio onto a more prudent path that complies with the new rules of the EU budget. The adjustment should include decisive action to tackle tax evasion, limit the growth of pension spending and conduct ambitious spending review policies.”
Pnrr essential to support activities, weighs shadow superbonus
“Public investments linked to the Pnrr will be fundamental to support activity in the short term and to increase growth potential in the medium term”, underlines the OECD in the chapter dedicated to Italy, further explaining that “the full implementation of public investments and the structural reforms envisaged by the Pnrr could revive the Italian GDP in a lasting way with the further advantage of further reducing the debt/GDP ratio”.
The main negative riskunderlines the OECD, “is that the reduction of the ‘Superbonus’ triggers a greater contraction than expected of housing investment, which was a key source of growth in 2021-23. On the positive side, the acceleration of public investment linked to the PNRR could stimulate growth in 2024 and 2025. Full use of the funds implies that public spending must increase from around 1% of GDP in 2023 to around 2 .5% of GDP on average between 2024 and 2026”.
OECD area
As regards the area ofOECD, GDP is expected to grow by 1.7% again this year and then record a +1.8% in 2025. After +0.5% in 2023, GDP in the euro area is expected to grow by 0.7% in 2024 and then rise to +1.5% in 2025. In the G20 countries, after +3.4% in 2023, GDP should slow to +3.1% in 2024 and 2025 while in the USA, after +2.5% in 2023, GDP should grow to +2.6% in 2024 and then slow down to +1.8 % in 2025. After +5.3% in 2023, China’s GDP is expected to grow by 4.9% in 2024 and 4.5% in 2025.
Cautious optimism despite geopolitical risks
“Cautious optimism has begun to take hold in the global economy, despite modest growth and persistent geopolitical risks. Inflation is falling faster than expected, labor markets remain strong, unemployment is at or near historic lows. Private sector confidence is improving. Despite this, the impacts linked to monetary conditions are being felt, especially in the real estate and credit markets”, states OECD Chief Economist Clare Lombardelli, underlining however that the recovery is not homogeneous. “The United States and a number of large emerging countries continue to show strong growth, unlike European economies,” Lombardelli points out. “Despite a more balanced risk outlook, concerns remain, especially linked to high geopolitical tensions, particularly in the Middle Eastwhich could disrupt energy and financial markets, causing a surge in inflation and faltering growth,” he notes.
In the medium and long term, he observes, the situation of public finances at a global level “is worrying”. Governments, she notes, “must face growing debt and increased spending demands due to an aging population, climate change mitigation and defense needs”. Therefore the international organization underlines the need for a “solid approach to medium-term expenditure containment, to encourage new revenues and to concentrate political efforts on structural reforms that favor growth”.
“Disappointing” growth, he notes, underlines “the need to strengthen global trade and productivity.” At the same time there is a need to “accelerate decarbonisation” and this “requires courageous political measures, such as investing in green and digital infrastructure and promoting the development of new technologies”. Developments in artificial intelligence (AI) “provide a welcome and much-needed opportunity to increase productivity”.
