After declining to quite low levels, investment should lead the recovery. Unemployment will rise significantly while inflation will decline slowly.
Given Italy's weak underlying fiscal position, the authorities have rightly abstained from significant discretionary fiscal expansion, while redirecting some spending within the existing budget envelope to better sustain domestic demand, notably private consumption. The budget deficit will nevertheless increase substantially in 2009 as the recession hits revenues, and may increase somewhat further in 2010 despite the planned fiscal consolidation.
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©OECD Observer No 274, July 2009