The Italian economy is likely to achieve only slow growth of less than 1% of GDP per year over 2016-2018, according to a report from S&P Global Ratings.
“We don’t expect the Italian economy to return to its pre-crisis output peak before the middle of the next decade because productivity remains very depressed. Italy is the only European country not to have recorded any productivity gains since 2000,” said Jean-Michel Six, chief economist for EMEA at S&P Global Ratings.
Despite a significant fall of the euro rate in 2014 and early 2015, Italy’s real export performance has been lackluster and is lagging behind other eurozone countries. Italian real exports were 4% above their pre-crisis peak in Q2 2016, which is still very modest compared to euro area partners that are 15%-25% above the pre-crisis peak.
The lack of dynamism in productivity that could have lifted overall potential growth and boosted foreign competitiveness, remains Italy’s major weakness, the report says. Competitiveness has suffered from a misalignment between stagnating productivity and rising wages, leading to a gradual appreciation of unit labor costs and of the real effective exchange rate.
Labor market reform and attempts to address the high rate of nonperforming loans have yet to make significant progress in lifting growth.
“In the short term, the uncertainty surrounding the referendum on the senate reform in early December is likely to weigh on the business climate,” Six said.
“Looking ahead, the slow improvement in the labor market will support a modest rise in household consumption, while we expect investment to pick up gradually, albeit remaining highly vulnerable to setbacks,” he said.