* IMF urges rapid steps to boost growth, cut debt
* Unemployment "unacceptably high"
* Small structural surplus next year would be appropriate
(Adds background, quotes)
ROME, June 17 Italy's economic recovery remains
fragile and Matteo Renzi's government needs to take rapid steps
to increase the country's growth potential and cut debt, the
International Monetary Fund said on Tuesday.
In its written conclusions after a visit to Italy, the IMF
called on the government to tighten the budget to achieve a
modest fiscal surplus next year in structural terms and urged
Italian banks to step up efforts to reduce bad loans.
"The recovery remains fragile and unemployment unacceptably
high, highlighting the need for bold and quick policy actions,"
the IMF said in the document.
Italy's economy contracted by 0.1 percent in the first
quarter after emerging at the end of 2013 from a two-year
Renzi, who replaced party rival Enrico Letta as prime
minister in February, has promised a raft of reforms to overhaul
the euro zone's third-biggest economy and its political system
but little of his ambitious agenda has been implemented so far.
He is seeking budget flexibility from the European Union in
order to be able to spend more on investments to re-generate the
economy, which has been sluggish for more than a decade and is
struggling with high unemployment above 12 percent.
The government currently forecasts the budget deficit to
fall to 2.6 percent of economic output this year after coming in
bang on the EU's ceiling of 3 percent in both 2012 and 2013.
In structural terms, adjusted for the effects of the
business cycle, the government forecasts a deficit of 0.6
percent of gross domestic product this year and 0.1 percent in
The IMF called for more ambitious consolidation, saying "a
modest structural surplus next year would be appropriate to
bring down debt faster - this would be best achieved smoothly to
avoid large adjustment."
It also called on Italy to reform its labour market, saying
that the introduction of contracts offering gradually increasing
job protection would be fairer than the current setup divided
between highly protective permanent contracts and temporary
contracts offering little or no rights to workers.
(Reporting by Steve Scherer and Giuseppe Fonte, writing by
Gavin Jones; Editing by Susan Fenton)