In the latest Economic Outlook published on Thursday (2 May) the Organization for Economic Co-operation and Development (OECD) called on Italy to intervene resolutely against tax evasion, to limit the growth of spending on pensions and to carry out ambitious revisions to general public spending. In the report analyzing the economic situation of the 38 member countries, the OECD also underlined how the full implementation of the National Recovery and Resilience Plan (PNRR) could persistently strengthen the country’s growth capabilities.
In the report, the OECD forecasts that gross domestic product (GDP) will grow by 0.7% in 2024 and 1.2% in 2025.
According to the Paris-based organisation, high inflation over the past two years has eroded real incomes, financial conditions remain tense and most exceptional fiscal support policies linked to the COVID-19 and energy crises have been scaled back or terminated, weighing on private consumption and investments.
Furthermore, for the OECD, the expected recovery in real wage growth and the increase in public investments linked to New Generation EU (NGEU) funds will only partially offset these obstacles.
“The risks are essentially balanced. The main downside risk is that the scaling back of the so-called Superbonus construction tax credit triggers a larger-than-expected contraction in real estate investment,” the report said.
“On the positive side, a significant pickup in public investment linked to the National Recovery and Resilience Plan (NRRP) could boost growth,” the report said.
In the paragraph on public finances, the OECD observes that the budget deficit will reduce relative to GDP, however remaining above the 3% threshold until 2025, while the debt-to-GDP level is high with pressure on spending from the need for investment and costs related to aging.
“A substantial adjustment of public finances will be necessary for several years to intervene on future pressures on spending, while at the same time it will be necessary to put the debt burden on a more prudent path and to align with the new rules” of the Stability and Growth Pact European, says the report.
“Progress with structural reforms has been substantial,” the report specifies, but states that spending from funds linked to Next Generation EU “is lagging behind the original programme, which mainly reflects delays in the implementation of public investment projects ”.
The PNRR “approved by the European institutions in 2023, could help accelerate implementation, including by focusing on projects for which implementation by 2026 remains feasible”.
According to the OECD, “the priority should now be to strengthen the implementation capacity of public administration, especially at regional and municipal level”.
The OECD estimates that Italy’s debt-to-GDP ratio will stand at 139.1% in 2024 from 137.1% in 2021 and then rise to 140% in 2025. As regards Italy’s deficit, it will stand at 4.4% in 2024 and 3.8% in 2025, down from 7.4% in 2023.
The situation globally and in Europe
In the report, the OECD notes some signs of improving prospects at a global level, despite the still modest growth of economies. For 2024, global GDP is expected to be around 3.1%, unchanged from 2023, followed by a slight recovery to 3.2% in 2025.
“The impact of tighter monetary conditions continues, especially in housing and credit markets, but global activity is proving relatively resilient, inflation is falling faster than initially expected and private sector confidence is improving” , the report reads.
Overall inflation in OECD countries is expected to fall to 5% in 2024, from 6.9% in 2023, and fall further to 3.4% in 2025. By the end of 2025, inflation in the OECD is expected to approach to most central bank targets of 2 percent.
In the report, the OECD estimates lower growth in developed G20 countries than in developing countries. The United States, according to the report, will record GDP growth of 2.6% in 2024 before declining to 1.8% in 2025. India is expected to grow at a constant rate of 6.6% for both 2024 than for 2025, while Indonesia could record an increase of 5.1% in 2024, rising to 5.2% in 2025. China is further behind with growth expected in 2024 of 4.9% and 4 .5% in 2025.
The United Kingdom, on the other hand, presents itself as a black jersey within the G7 in 2025 with a growth of 1% from a 0.4% expected for the current year.
In the euro area, the OECD estimates PUL growth of 0.7% to 1.5% in 2025, with Germany still in difficulty. Unlike countries like France and Italy, which essentially maintain growth percentages in line with the euro area averages (France will grow slightly more than Italy in 2025 with a GDP increase of 1.3%) , Germany should also record modest GDP growth of 0.2% in 2024, while in 2025 growth could be around 1.1%, closer to the percentages of France and Italy.
