OECD nudges up forecast for Italy 2017 GDP growth to 1 percent

ROME (Reuters) - The Italian economy will grow by a modest 1.0 percent this year, the Organisation for Economic Cooperation and Development said on Wednesday, marginally raising its previous forecast of 0.9 percent made in November.

A woman stands in a shoes shop in Rome, Italy, August 11, 2016. Picture taken August 11, 2016. REUTERS/Max Rossi

The latest OECD projection for the euro zone’s third largest but most sluggish economy is in line with those of Italy’s government, the European Commission and the Bank of Italy.

All these bodies forecast Italian growth of 0.9 percent or 1.0 percent, roughly the same rate as it posted in 2016 and below the expected growth of all its peers in the 19 nation currency bloc.

The International Monetary Fund forecasts Italian growth of just 0.7 percent.

The Paris-based OECD said in a 150-page report on Italy that its economy would continue to grow at the same 1.0 percent pace in 2018. (file:///C:/Users/u8001279/Downloads/1017051e.pdf)

It forecast that Italy’s public debt, the second highest in the euro zone after Greece’s, would be broadly stable this year at 132.7 percent of gross domestic product, before beginning to decline in 2018.

Among many policy recommendations, the OECD called on Italy to boost investment while maintaining prudent fiscal policy, reduce poverty and make its education system and bureaucracy more efficient to raise chronically weak productivity.

“Prolonged weak growth and low productivity have eroded social inclusion, requiring renewed efforts to raise employment, especially of women and youth, reduce poverty, especially among youths and children, and improve skills,” it said.

It estimated that after years of declining productivity, Italy’s potential growth rate, meaning the cruise speed the economy can grow at without generating inflation, now stands at zero.

It said Italy’s budget deficit this year should come in at 2.3 percent of GDP, in line with the government’s target. However, Rome has agreed to further deficit cuts worth 0.2 percentage points to meet a request by the European Commission.

Italy’s fiscal stance is “broadly appropriate,” the OECD said, provided that available fiscal space is used to finance policies, such as public investments, leading to faster and more sustainable growth, rather than to fund everyday spending.

“Restoring public investment is a priority as since the start of the crisis it has dropped by more than 30 percent in nominal terms, to 2.2 percent of GDP, the lowest level in more than 25 years,” the report said.

Editing by Crispian Balmer