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Italy’s Economic Outlook – Internal Demand to Drive Italy’s Recovery

ISTAT, Italy’s official statistics bureau published its economic outlook for Italy today. The figures for 2015 and 2016 appear to be rather optimistic, perhaps too much so.

One imagines the statisticians who created the GDP forecasts are assuming the reforms Italy’s government is slowly pushing though the country’s parliament will have some effect.

According to the ISTAT forecast, Italy’s GDP will have fallen by 0.3% by the end of 2014. In 2015, however, Italy’s GDP is expected to grow by 0.5% and then by a whole 1% in 2016. What will drive what is predicted to be a moderate recovery? Domestic demand, apparently. There are some signs that internal demand is rising with spending by Italians up by 0.3%. Seeing as unemployment is at record levels – though falling ever so slightly – and layoffs are still taking place, it is a little hard to understand just why Italians are spending more. Perhaps those Italian companies which have survived are starting to grow once more.

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Curiously for this Italy watcher who thinks Italy should be an export powerhouse, domestic demand is to continue to drive growth into 2016. Demand for Italian products beyond Italy’s borders, in other words, exports, is only expected to generate growth of around 0.1%.

Will the crystal ball gazing be transformed into reality? We’ll have to wait and see. The reform which is supposed to point Italy in the right direction is the much trumpeted employment reform known in Italy as the Jobs Act, only those who are not in government circles are unsure the proposed legislation will have the desired effect. On the other hand, the leader of Italy’s Confindustria employers’ association did appear moderately enthusiastic when he addressed his association’s members at a congress in Brescia today. Italy’s ever optimistic prime minister Matteo Renzi was also at the meeting, and outside, so where a crowd of protesters who are not at all convinced the employment law reforms will help them out.

Italy’s unions are gearing up for major protests against government policy and strike action will follow. What this means is that the Renzi government may not be able to push though the reforms it wants to, in which case, Italy’s GDP growth may not meet expectations in either 2015 or 2016. We shall see.

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