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Country Forecast Italy Product Image

Country Forecast Italy

  • ID: 2138624
  • December 2013
  • Region: Italy
  • 49 Pages
  • The Economist Intelligence Unit

The broad centre-left/centre-right coalition government led by Enrico Letta of the dominant centre-left party, the Partito Democratico (PD), is inherently fragile and unlikely to hold together until the end of the parliamentary term in 2018. The economic reforms carried out in 2012 by the former technocratic government led by Mario Monti improved the public finances, but we expect the Letta government to avoid further major economic reforms for fear of exacerbating divisions within the coalition. We expect the fiscal deficit to widen from 2.9% of GDP in 2012 to an estimated 3.2% in 2013 and 3.4% in 2014, before declining to below 3% in 2015-18. The public finances will remain vulnerable to shifts in investor sentiment. Rolling over public debt, which is set to peak at about 137% of GDP in 2014, may require indirect support from external actors, notably the European Central Bank (ECB). We forecast that following a contraction of an estimated 1.9% in 2013 the economy will return to modest growth of 0.3% in 2014 and about 1% a year in 2015-18.

On November 16th, the centre-right leader and former prime minister, Silvio Berlusconi, dissolved the Popolo della Libertà (PDL) party and refounded Forza Italia (FI), causing some members to break away. FI subsequently withdrew from government, but the breakaway group will continue to support the Letta government. On November 27th, the Senate (the upper house) voted to expel Mr Berlusconi and ban him from holding public office for up to six years after his tax fraud conviction.

On November 26th, the Senate approved the draft 2014 budget. It must still be approved by the Chamber of Deputies (the lower house), but this is very likely given the government's comfortable majority there.

Country Forecast Italy

Italy at a glance: 2014-18
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

Political outlook: Election watch

Political outlook: Key players to watch
Giorgio Napolitano
Enrico Letta
Matteo Renzi
Silvio Berlusconi
Angelino Alfano

Political outlook: International relations

Demographic assumptions
Population growth is likely to come to a virtual halt by 2018
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
The fractious nature of Italian politics will weigh on the business environment

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 improvement in Italy's external balances is expected to continue

Business environment outlook: Policy towards private enterprise and competi
Pressure to liberalise closed sectors will continue to come mainly from the EU
ENI is required to relinquish control over gas distribution

Business environment outlook: Policy towards foreign investment
Governments will have an ambivalent attitude towards foreign investment
The political capacity to resist foreign takeovers is likely to remain limited

Business environment outlook: Foreign trade and exchange controls
There is little prospect that the Doha round of trade talks will progress

Business environment outlook: Taxes
Italy's tax system is complex so compliance is likely to remain costly
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
ECB audit to restrict willingness of banks to increase private sector lending
Reforms should improve disclosure and curb cross-shareholdings

Business environment outlook: The labour market
The 2012 reform was a step in the right direction, but not ambitious enough

Business environment outlook: Infrastructure
Budgetary constraints and local resistance will delay some projects

Economic forecast: Policy trends

Economic forecast: Fiscal policy

Economic forecast: Monetary policy

Economic forecast: International assumptions

Economic forecast: Economic growth

Economic forecast: Sectoral trends
The performance of the manufacturing sector will depend on speed of reforms

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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