Country Forecast Italy
The Economist Intelligence Unit, July 2012, Pages: 53
The Economist Intelligence Unit expects Mario Monti's government to last until the next election in April 2013, but the risk of an early election has risen and any subsequent government is likely to be unstable. We expect the fiscal deficit to decline but the government's target of a balanced budget in 2014 will be missed because of Italy's poor economic growth prospects and rising interest payments on public debt. The government is carrying out reforms to promote growth, but their impact remains uncertain. The risk has increased that investor concerns about Italy's debt burden will lead to a default followed by a banking crisis and euro exit. In our central scenario, where these events are avoided, we forecast that GDP will fall by 2% in 2012 and by 0.5% in 2013, before showing modest growth of around 1% during the rest of the forecast period.
Having said that he would not run for prime minister in 2013, Silvio Berlusconi announced in mid-July that he would lead his party in the next election due to take place in April 2013. The risk of his party, the Popolo della Libertà (PDL), breaking up probably motivated his return to frontline politics. We continue to expect a coalition of parties ranging from the hard left to the centre-left to emerge with a majority.
The European Central Bank (ECB) cut its main refinancing rate from 1% to 0.75% on July 5th. We now expect a further cut of 25 basis points by the end of 2012.
Country Forecast Italy
Italy at a glance: 2012-16
OVERVIEW
Key changes from last month
Political outlook
Economic policy outlook
Economic forecast
Italy--highlights: Political outlook
Italy--highlights: Demographic outlook
Italy--highlights: Business environment outlook
Italy--highlights: Economic outlook
Italy--highlights: Market opportunities
Italy--highlights: Long-term outlook
Fact sheet
Political outlook: Political forces at a glance
Political outlook: Political stability
Political outlook: Political and institutional effectiveness
Efficiency may improve in the public administration, but not in the judiciary
Corruption and organised crime will continue to pose problems for business
Political outlook: Election watch
Political outlook: Key players to watch
Giorgio Napolitano
Mario Monti
Pier Luigi Bersani
Silvio Berlusconi
Political outlook: International relations
Demographic assumptions
Population growth is likely to come to a virtual halt by 2016
Reforms should help to increase labour mobility
Rise in proportion of elderly will put pressure on pensions and healthcare
Business environment outlook : Business environment rankings
Government effectiveness will remain weak
Euro crisis will continue to affect taxation and financing
Business environment outlook : Italy's business environment at a glance
Policy towards private enterprise and competition
Policy towards foreign investment
Foreign trade and exchange controls
Taxes
Financing
The labour market
Infrastructure
Business environment outlook : Macroeconomic environment
The macroeconomic environment improves slightly as fiscal deficits fall
Italy remains vulnerable to contagion from the euro area crisis
Business environment outlook : Policy towards private enterprise and compet
Political pressure to curb Competition Authority likely to continue
Business environment outlook : Policy towards foreign investment
Invitalia has so far proved incapable of attracting foreign investment
Business environment outlook : Foreign trade and exchange controls
Liberalisation of trade is under way in telecommunications services
Financial integration setback should be overcome
Business environment outlook : Taxes
Italy's tax burden is high and unlikely to decline much, if at all
High taxes on labour are likely to persist owing to fragile public finances
Efforts to reduce tax evasion have had some success and are likely to continue
Business environment outlook : Financing
Large holdings of government bonds leave banks exposed to sovereign default
Reforms should improve disclosure and curb cross-shareholdings
Business environment outlook : The labour market
Italy's two-tiered labour market has resulted in high youth unemployment
The government has sped up the shift to a defined-contributions pension system
Business environment outlook : Infrastructure
Budgetary constraints will continue to curtail infrastructure investment
Energy sector investments will continue to face strong local resistance
Economic forecast: Policy trends
Economic forecast: Fiscal policy
Economic forecast: Monetary policy
Economic forecast: International assumptions
Economic forecast: Economic growth
Economic forecast: Sectoral trends
Weak external demand and shift of output out of Italy to hit manufacturing
SMEs will remain under pressure to consolidate
Economic forecast: Inflation
Economic forecast: Exchange rates
Economic forecast: External sector
Economic forecast: Foreign direct investment in Italy
Stocks and flows
Origin and distribution
Determinants
Impact
Potential
Market opportunities: Market outlook
Italy is a major market, but growth potential remains limited
Market opportunities: Consumer expenditure
The ageing population will drive growth in healthcare spending
Market opportunities: Social indicators and living standards
Long-term outlook: The long-term outlook
Italy's demographic profile will be the main brake on long-term growth
A more favourable policy environment would boost long-term growth
Long-term outlook: Methodology for long-term forecasts
Growth projections
Definitions of variables
The independent variables include:
Summary of findings
Productivity growth
Data summary: Global outlook
Data summary: Gross domestic product, current market prices
Data summary: Gross domestic product, at constant prices
Data summary: Gross domestic product by sector of origin
Data summary: Growth and productivity
Data summary: Economic structure, income and market size
Data summary: Fiscal indicators
Data summary: Monetary indicators
Data summary: Employment, wages and prices
Data summary: Current account and terms of trade
Data summary: Foreign direct investment
Data sources and definitions
Global data
Domestic data
Abbreviations
Guide to the business rankings model
Outline of the model
Calculating the rankings
Measurement and grading issues
Indicator scores in the business rankings model
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