The severe recession in Italy started earlier than elsewhere but activity rebounded in the third quarter. Improved financial conditions have helped rebuild confidence and bolster domestic demand. The saving ratio, estimated to have risen substantially in 2009, is projected to fall back only slightly; consumption will be a more significant factor in growth during 2011. Further support to exports will come from the recovery in world trade. Higher unit labour costs, despite some falls in wage costs, and the oil price upturn will moderate the decline in inflation, even as unemployment rises somewhat further.
Given high public debt, Italy did not introduce a large-scale fiscal stimulus. Nonetheless, with cyclically weak revenues, the deficit exceeds 5% of GDP and debt is set to increase to 120% of GDP by 2011. Significant fiscal consolidation efforts will thus be required from 2011 onwards, as growth picks up.
©OECD Observer 2010