Italy: Watch that deficit

GDP slowed in the first half of 2007, as export growth weakened, rebounded in the third quarter but may weaken again in the fourth. Growth over the course of 2008-09 is projected at near its potential rate of just under 1.5%. Unemployment, which continued to fall through the first half of 2007, should decline further, but at a slower rate. The recent pickup in price inflation may persist into 2008 and 2009.
A promising improvement in the underlying fiscal situation seen in 2006 and throughout most of 2007 has been slowed in the revised 2007 budget and that for 2008. The upward revision in spending plans is not the best response to unanticipated and possibly temporary buoyancy in revenues. Tax rates are already quite high, the overall debt level is the second highest in the OECD and increases in age-related spending are on the horizon, even though pension reform, provided it is fully followed through, has put Italy in a situation that seems better than in many countries. The government needs to convince public opinion that its plans to reduce the deficit and debt must be maintained and, preferably, strengthened.



©OECD Observer No. 264/265, December/January 2008

OECD Economic Outlook No. 82, December 2007 - Preliminary version
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