The International Monetary Fund this week became the latest entity to downgrade economic growth prospects for Italy, predicting Europe's fourth largest economy will shrink 0.1 percent this year, further extending Italy's six-year-long economic malaise.
Like the Organization for Economic Co-operation and Development, the Bank of Italy, Italy's National Statistics Institute, and the Italian Treasury before it, the IMF cited weak domestic demand, slow growing industrial production, massive government debt, tight access to credit, and high unemployment levels as factors in the country's unlikelihood to show positive growth for a full year for the first time since 2007.
"With this IMF report we are listening to the same song, but if you listen to it enough it has an effect," Franco Bruni, a banking and monetary policy expert with Bocconi University in Milan, said in an interview.
The IMF was not completely critical in its report, predicting 1.5 percent growth next year and praising Italian Prime Minister Matteo Renzi's reform plans, saying Italy must overhaul its labor laws, justice system, tax system, and public administration in order to reverse the trend on growth.
"I think the support for Renzi's reforms is the most important part of the IMF report," Giuseppe De Arcangelis, an international economics expert at Rome's La Sapienza University, told Xinhua. "The trouble is Italy needs the reforms in order to spark growth and it needs economic growth to take an aggressive stance on reform because it becomes hard to soften the blows economically."
Bruni, De Arcangelis, and others said Renzi's proposed reform of labor laws is the most important task awaiting him. Italy's laws now make it difficult to fire personnel -- something advocates say provides a protection for workers in tough economic times. But economists say it also makes companies much less likely to take on new workers because doing so could obligate them to keep the worker on staff for decades.
"This is one reform that could probably be passed even while the economy is struggling because it would itself promote growth by making it easier for companies to assume new workers," Bruni said. "The problem there isn't economic but political, because there's opposition to the law."
Fortunately for Renzi, his approval levels remain relatively strong, despite Italy's weak economy and high unemployment levels. That may help assure he has the political capital he needs to push through his reform agenda despite opposition in parliament, even within his own party.
Pollsters say Renzi's support level is helped by the fact that most of the rest of Europe is suffering economically along with Italy: "If new programs reported that Italy continued to struggle as the rest of Europe experience vibrant growth, that would be much more damaging," Maria Rossi, Opinioni co-director, said in an interview.
Economists say that once Europe returns to a growth tract, it will help Italy pull itself up as well, by increasing demand for the country's exports and resulting in more tourism. In its report, the IMF predicts that will start to happen in the second half of next year./.