MILAN – At the end of this month, Italian voters will choose their next government, from which they expect jobs and a more level economic playing field – and from which Italy’s European partners expect structural reforms and fiscal probity. What should the new government’s economic-policy agenda be?
To reduce public debt, which stands above 120% of GDP, while minimizing painful adjustments, Italy needs economic growth – something that has eluded policymakers in recent years. Indeed, Italy’s average annual GDP growth rate since joining Europe’s economic and monetary union in 1999 has been an anemic 0.5%, well below the eurozone average of nearly 1.5%. In the four years since the global financial crisis struck, the growth rate fell to -1.2%, compared to the eurozone average of -0.2%, and it is expected to remain negative this year.
The new government’s biggest challenge will be to implement reforms that enable Italy’s economic performance to catch up to that of its neighbors after years of bad policies and neglect. This requires increased investment in innovation and human capital.
From 1992 to 2011, labor productivity grew at an average annual rate of 0.9%, the lowest in the OECD. Since 2001, unit labor costs have been growing faster than real GDP and employment, undermining the economy’s competitiveness vis-à-vis developing countries. In the last decade, Italy’s share of global exports dropped from 3.9% to 2.9%.