Italy out of recession, but OECD issues growth warning
Padoan says growth now more important than cutting debt, deficit11 March, 17:01
In its latest interim economic assessment, the Paris-based OECD said that Italy's gross domestic product (GDP) will show growth of 0.7% between January and March of this year.
The organization warned, however, that the expansion won't be easy or direct as in the second quarter of this year, economic growth will stall, likely showing just 0.1% expansion between April and June.
Mixed results are nothing new in the lackluster Italian economy which has struggled to recover from its worst recession since the Second World War.
Still, it received a bit of good news Tuesday as official data from the national statistical agency Istat confirmed that Italy's economy grew slightly - about 0.1% - in the final quarter of last year compared with the previous quarter, proving a harsh two-year recession is over.
Istat also revised upwards its official estimate for GDP for 2013, reporting that it fell by 1.8% rather than the 1.9% it had previously estimated.
Both figures suggest that the country is on a painfully slow path to recovery. The agency also revised its annualized comparison figures but not for the better, saying that GDP fell by 0.9% in the fourth quarter of 2013 with respect to the same period in 2012 - a slightly worse figure than a preliminary estimate of a 0.8% loss.
Such figures demonstrate that it's time European nations turn their focus from concerns about cutting costs and reducing debt to instead consider policies aimed at encouraging growth and recovery, Economy Minister Pier Carlo Padoan told his counterparts from across the continent during meetings Tuesday. "(We) must ensure that Europe looks more to growth and consolidation after the great crisis that hit us," said Padoan during his first major outing as Italy's economy minister. The Italian government was quick to reassure its European partners that Italy will not remain the weakest link but instead, expects to see "significant" results from its economic reforms designed to boost growth and jobs "within 2-3 years," Padoan told eurozone finance ministers earlier.
In fact, ANSA sources say that Italy's government has found ways to finance 10 billion euros in tax cuts quickly, which it hopes will stimulate growth.
"We're there," the sources said Tuesday, adding that the cuts will be concentrated on income taxes, with a few "selective" incentives for companies that take on new staff. Around half of the new money will come from a review of public spending, the sources said, with another three billion euros coming from savings derived from a drop in the costs of servicing the national debt.
Another slice of the money should come from a reduction in military spending. Buttressing what Premier Matteo Renzi says will be a new direction, on Wednesday he is expected to introduce what he has described as an extensive program of job creation measures.
In terms of Italy's GDP, "my attitude is one of caution. I prefer to estimate on the low side (of growth)," Padoan said after a Monday meeting of his eurozone counterparts.
That suggests Padoan, who was until recently chief economist of the OECD, supports recent forecasts made by the European Commission, which projected that Italy would see average GDP growth this year of just 0.6%.
Padoan also reassured the other finance ministers that Italy's plan won't put at risk its compliance with European budget rules.
"The priority is to put in place policies to promote growth and employment, without wasting earlier efforts made to keep Italy's deficit-to-GDP ratio within the European Union-mandated limit of 3%," he said.
Padoan urged his counterparts to give Italy some breathing room to reform its economy, but said that should not take too long as many policies were already prepared and introduced by Renzi's predecessor, Enrico Letta.
"Many of the directions of the government are in line with those of the previous government," but the difference now is that Renzi "intends to accelerate," said Padoan.
Italy has been under considerable pressure from the European Commission, which has complained that Italy's 2014 budget, passed by Letta, was insufficient to correct the country's "excessive macroeconomic imbalances", including high debt and low competitiveness.
The EC has warned that it would be monitoring Italy's macroeconomic imbalances and efforts by the eurozone's third-largest economy to reform these.