Following a 0.6 percent decline in 2008, the staff projects a further 2.1 percent contraction in Italy’s GDP in 2009. This projection is roughly in line with those by the Bank of Italy and the European Commission. The government will shortly issue its revised forecasts, taking into consideration the most recent developments, including a greater-than expected decline in private consumption and investment. Staff projects a small negative growth in 2010. This scenario is in contrast with the assumption of a generalized upturn of the global economy and with the most recent forecasts for the Italian economy issued by the European Commission and Bank of Italy, both of which project a recovery in 2010. The authorities believe that a number of factors will limit the duration of the recession: real disposable income will be sustained by low inflatio(particularly lower energy prices); corporate and household balance sheets appear relatively solid. Finally, consumption should be less affected than in other countries by the negative wealth effect stemming from the downturn in the housing market, but also because its lower reliance on credit. After several years of robust job creation, employment growth declined in 2008 although it remained positive. Unemployment is anticipated to increase in 2009, but will remain well below the European average. The 2008 surge in inflation, triggered by higher energy and other commodities spikes, is receding fast and is expected to continue to do so in 2009. The current account deficit is expected to decline, thanks to a surplus in the trade balance; this, in turn, reflects the improvement in the terms of trade. Although the authorities fully expect a very difficult environment throughout 2009, they believe that the avoidance of excessive imbalances in the previous cycle makes the Italian economy relatively less exposed to downside risks, and this will facilitate the recovery when the global economy turns the corner.

Scritto da: International Monetary Fund