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EUROPEAN COMMISSION

Brussels,

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COMMISSION STAFF WORKING DOCUMENT

Country Report Italy
Including an In-Depth Review on the prevention and correction of macroeconomic imbalances

Accompanying the document

COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROGROUP

European Semester: Assessment of progress on structural reforms, prevention and correction of macroeconomic imbalances, and results of in-depth reviews under Regulation (EU) No /

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Contents

Executive summary

manicapital.comic situation and outlook

manicapital.comss with country-specific recommendations

manicapital.comy of the main findings from the Macroeconomic Imbalance Procedure in-depth review

manicapital.com priorities

Public finances and taxation

Financial sector

Labour market, education and social policies

Investment and competitiveness

Sectoral policies

Annex A: Overview table

Annex B: Macroeconomic Imbalance Procedure Scoreboard

Annex C: Standard tables

References

LIST OF Tables

Table Key economic, financial and social indicators - Italy

Table Summary table on CSR assessment14

Table 3:Macroeconomic Imbalance Procedure Assessment Matrix (*) - Italy

Table Italian banking system key indicators

Table BThe MIP scoreboard for Italy (AMR )

Table CFinancial market indicators

Table CHeadline Social Scoreboard indicators

Table CLabour market and education indicators

Table CSocial inclusion and health indicators

Table CProduct market performance and policy indicators

Table CGreen growth

LIST OF Graphs

Graph Real GDP and components

Graph Real investment and components

Graph Regional contributions to national GDP growth (left-hand side) and potential growth and contributions (right-hand side)

Graph Labour market indicators: Employment (left-hand side) and unemployment (right-hand side)

Graph Price and wage dynamics

Graph Credit growth and lending rates

Graph Current account balance9

Graph Italy's public finance indicators

Graph Overall multiannual implementation of CSRs to date

Graph Drivers of 'snowball effect' on public debt

Graph Evolution of Italy's public debt-to-GDP ratio under different debt sustainability analyses

Graph Productivity growth and gross value added

Graph Evolution of real general government primary expenditure (left-hand side) and composition of primary expenditure by COFOG functions (right-hand side)

Graph Benchmarking the Italian Banking System30

Graph Permanent, temporary and self-employed, cumulative change

Graph Italy’s export market shares, exchange rate and cost competitiveness indicators

Graph Non-residential tangible and intangible investment in Italy and the rest of the euro area, constant prices

Graph Share of debt in companies facing financial stress

Graph Return to skills (numeracy)

Graph Time needed to solve civil and commercial litigious cases

Graph Overall restrictiveness of business services,

Graph European quality of government index - best and worst performing regions per country

Graph Ultra-fast Broadband coverage and penetration in (% of households)

LIST OF Boxes

Box Tangible results delivered through EU support to structural change in Italy

Box Euro area spillovers

Box Effects on labour supply from rationalising childcare benefits

Box Monitoring performance in light of the European Pillar of Social Rights

Box Investment challenges and reforms in Italy

Box Policy highlights: Equitable and Sustainable Well-being indicator system

Executive summary

Italy’s ongoing recovery offers a window of opportunity to boost the reform momentum. By fully implementing already adopted measures and completing key reforms in the pipeline, Italy could lift its sluggish potential growth, rooted in weak productivity. This would reduce the risk of a slowdown, should the external environment and financial conditions become less supportive. In particular, Italy's resilience could be helped by improving the business environment — notably by reforming the judicial process and the insolvency and taxation frameworks — and strengthening the banking system and the labour market. (1)

Italy's recovery has strengthened. Supported by the accommodative monetary policy stance of the European Central Bank (ECB) and buoyant external demand, Italy’s real GDP growth is projected at  % in both and It is expected to slow to  % in Rising demand and favourable financing conditions have started to support investment again after the sharp fall it suffered during the global financial crisis.

Labour market conditions continue to improve. Headcount employment ( years) rose by  % in to over 23 million people, taking it back to pre-crisis levels. The employment rate ( years) rose to  % last year, largely driven by temporary employment, after a sharp increase in permanent contracts in Employment is set to increase further in , albeit at a more moderate pace of  %. As inactive people join the labour force, higher activity rates will support medium term growth prospects. In the short term, however, this will reduce the unemployment rate only gradually.

Given its systemic importance, Italyis a source of potentially significant spillovers to the rest of the euro area. Italy is also an important export market for a number of euro area countries and maintains strong financial linkages to other euro area countries.

Long-standing structural weaknesses and regional disparities continue to weigh on Italy’s growth potential