2021 OECD ECONOMIC SURVEY OF ITALY Laying the foundations for a stronger recovery Rome, September, 6th 2021
@OECDeconomy
@OECD
http://www.oecd.org/eco/surveys/economic-survey-italy.htm
Key Messages Higher growth is needed to raise employment, improve living standards and ensure healthy public finances. Italy should: • Provide targeted fiscal support until the recovery is well underway • Invest in green infrastructure and R&D and reform civil justice and competition • Improve the public sector's effectiveness by focusing on performance, filling skill gaps and reviewing regulatory barriers 2
SUPPORTING THE ECONOMIC RECOVERY FROM COVID-19
3
The pandemic hit a poorly performing economy Real GDP per capita 130
Index 2000 = 100 Italy
France
Spain
European Union
OECD
125 120
115 110 105
100 95 90 85
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
4
Source: OECD (2021), National Accounts (database).
Regional divides are stark 60
North
Centre
South and islands
50 40 30 20 10 0
Employment rate
Investment to GDP
Share of households in relative poverty
Note: Employment rate is the share of employed in the population aged 15 and over in 2020; Investment share in GDP in 2018; The ISTAT estimate of the relative poverty in 2020 is based on a poverty line (International Standard of Poverty Line - ISPL) defining as poor a household of two components with a consumption expenditure level lower or equal to the mean per-capita consumption expenditure. Source: ISTAT.
5
COVID had a large effected on important sectors Change in real output in 2020 % 0 -10 -20
A. Travel and tourism
% 3 2 1 0
-30
-1
-40
-2
-50
B. Manufacturing
-3 -4
-60
-5
-70
-6
Source: World Travel and Tourism Council (2021), Travel and Tourism: Economic Impact 2021; OECD (2021), Quarterly National Accounts (database).
6
Job retention schemes were widely used, especially early in the crisis Percent of dependent employment
Short-time work, Unrestricted
OECD
Denmark
Finland
Slovenia
United Kingdom
Greece
Korea
Portugal
Take up in first wave (April / May 2020)
Japan
Norway
Czech Republic
Spain
Germany
Switzerland
Lithuania
Austria
Turkey
Italy
Belgium
Take up after second wave (December 2020)
France
% 40 35 30 25 20 15 10 5 0
Short-time work, Furlough
Note: Data are provisional. Short-time work - unrestricted: no significant limits on the reduction in working time; short-time work - furlough: no partial reductions in working time allowed. Source: OECD (2021), OECD Employment Outlook 2021, Chapter 2 “Job retention schemes during the COVID-19 crisis: Promoting job retention while supporting job creation”
7
The banking sector has strengthened Regulatory tier 1 capital to risk-weighted assets 2020 Q4, or latest, % 25 2020 Q4
2007 Q4
20 15
10 5 0
Note: Unweighted OECD average of available countries. Due to data unavailability the OECD average excludes New Zealand and Switzerland. Source: IMF (2021), IMF Financial Soundness Indicators Database; and Bank of Italy.
8
But non-performing loans remain high by international standards Share of gross non performing loans in gross total loans % 7
2020 Q4 or latest, %
27
6
5 4 3 2 1 0
Note: Unweighted OECD average of available countries. Due to data unavailability the OECD average excludes New Zealand and Switzerland. Source: IMF (2021), IMF Financial Soundness Indicators Database; and Bank of Italy.
9
Strong H1 2021 resulted in higher growth projections 2019
2020
2021f
2022f
Gross domestic product
0.3
-8.9
5.9
4.1
Private consumption
0.3
-10.7
4.7
4.5
-0.8
1.6
0.9
-0.6
Gross fixed capital formation
1.1
-9.2
15.9
8.7
Exports of goods & services
1.9
-14.5
12.0
7.1
Imports of goods & services
-0.5
-13.1
12.3
7.5
Unemployment rate (%)1
10.0
9.3
10.4
10.1
Consumer price index2
0.6
-0.1
1.5
1.3
Current account balance3
3.2
3.5
3.3
3.3
(annual growth rates, unless specified)
Government consumption
1
Based on provisional Istat data. 2 Harmonised Consumer Price Index.
Source: OECD Economic outlook and provisional projections
3
% of GDP
10
Key recommendations for a stronger and more resilient recovery in income and jobs • Continue fiscal support until the recovery is well underway and make it increasingly targeted • Announce a medium-term fiscal plan in advance to implement once the recovery is self-sustained • Mitigate the impact of rising bankruptcies by increasing resources for civil courts, implementing civil justice reform bill and further support the non-performing loan market and out-of-court settlement procedures 11
RAISING INVESTMENT AND PRODUCTIVITY GROWTH
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Investment lags other countries Investment in selected OECD countries % of GDP 50 45 40 35 30 25 20 15 10 5 0
2020 or latest General government
Households
Corporations
Note: Households include non-profit institutions serving households (NPISHs).OECD unweighted average is computed using the available OECD countries. For Estonia, Hungary, Italy and Slovenia, private investment is the difference between total investment and government gross fixed capital formation. Source: OECD National Accounts Statistics database; and OECD Economic Outlook database.
13
R&D spending is low Gross domestic expenditure on research and development 2019, % of GDP 5.0 4.5
Government
Business enterprise
Other
4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0
Note: Other includes primarily spending by higher education and non-profit organisations. Due to data unavailability the OECD average excludes Australia, Chile, Costa Rica, New Zealand and Switzerland. Source: OECD (2021), Main Science and Technology Indicators (database) http://oe.cd/msti.
14
Uncertainty about regulations and taxes weighs on green investment Major obstacle to investment 2019, % of all firms 70 60
50 40
30 20
10 0
Note: Share of firms citing uncertainty about the regulatory environment and taxation as an obstacle to investing in activities to tackle the impacts of weather events and emissions reduction. Source: European Investment Bank (2020), EIB Investment Survey.
15
An inefficient justice system hampers investment Recovery rate from bankruptcy procedures 100
% invested
90 80 70 60 50 40 30 20 10 0
Note: The recovery rate is recorded as cents on the dollar recovered by secured creditors through reorganization, liquidation or debt enforcement (foreclosure or receivership) proceedings. OECD is the median of OECD countries. Source: World Bank (2020), Resolving Insolvency, Doing Business 2020.
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Productivity gains have been low Average annual change in output per hour worked, 2012 to 2019 3.5
4.8
3.0
2.5 2.0 1.5 1.0 0.5 0.0 -0.5
Note: Output measured in USD, constant 2015 prices and PPP Source: Calculations based on data from OECD Productivity database.
17
The productivity gap largely reflects underperforming service sectors Average annual change in real gross value added per person employed 5
2000-07
2012-19
4 3 2 1 0 -1
Italy
OECD Manufacturing
Italy
OECD Services
Note: Unweighted OECD average of available countries. Due to data unavailability the OECD average excludes Colombia, Mexico and Turkey. Source: Calculations based on data from OECD Productivity database.
18
Investment in manufacturing has risen, but not in services Real investment in manufacturing and services Index, 2007 = 100
180 Manufacturing
Services
Manufacturing: intellectual property
Services: intellectual property
160
140 120 100 80 60
40
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Source: ISTAT and OECD calculations. 19
Restrictive regulations in services limit business dynamism Occupational entry regulations (OER) indicator for professional services 3.5
Administrative burdens
Qualification requirements
Mobility restrictions
3.0 2.5 2.0 1.5
Average
1.0 0.5 0.0
Note: An indicator value of 0 indicates the absence of regulations, 6 reflects a fully regulated market. Regulations for Canada and US represent the unweighted average of province/state level regulations. Source: Von Rueden, C. and I. Bambalaite (2020), "Measuring occupational entry regulations: A new OECD approach", OECD Economics Department Working Papers, No. 1606, OECD Publishing, Paris, https://doi.org/10.1787/296dae6b-en
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Key recommendations to raise investment and productivity • Reduce the stock of regulations • Minimise regulatory barriers to entering professional services, by using certification schemes. • Introduce a national productivity board to set a research agenda and raise the profile of productivity in the national debate • Provide certainty with a long-term plan on carbon prices and supporting policies to ease transition costs. 21
PUBLIC FINANCE REFORMS TO SUPPORT FASTER GROWTH AND JOB CREATION
22
Not much room left for investment and education Public expenditure in % of GDP 2019 or latest Old age pensions
Compensation of employees
Education
Italy
Public debt
OECD
Public investment 0
2
4
6
8
10
12
14
Source: OECD (2021), National Accounts Statistics (database). 23
Poverty is high – particularly among younger Italians Poverty rate by age group 2018 or latest 20
Italy
18
EU22
OECD
16 14 12 10 8 6 4
2 0
0-17
26-40
65+
Note: Poverty rate at 50 % of median equivalised income after taxes and transfers. Whiskers indicate range of OECD countries between the first and the last decile. Source: OECD (2021), Income Distribution Database (IDD).
24
Support to help jobseekers find work is low Total spending per unemployed on active labour market policies % of GDP per capita, 2018 or latest 50 45 40 35 30 25 20 15 10 5 0
Note: OECD average covers the countries shown in the graph. Source: OECD (2021), Statistics on Labour Market Programmes (database); OECD (2021), Labour Force Statistics (database).
76
25
Spending on pensions is set to rise further Old-age dependency ratio 90 80
2020
2050
70 60
50 40 30 20
10 0
Note: Number of individuals aged 65 and over per 100 people of working age defined as those aged between 20 and 64. Due to data unavailability the OECD average excludes Colombia and Costa Rica. Source: OECD (2019), Pensions at a Glance (database).
26
Permanently reducing the tax wedge for more people could boost employment Average labour tax wedge % 50
2019 Italy
Italy 2021, temporary cut in social security and EUR 100 tax credit
OECD
40 30 20 10 0
Single without children (100% of the average wage)
Couple with 2 children (100% and 67% of the average wage) Household composition and earnings as % of average wage
Note: The “Italy incl. 2021 tax credit and social contribution rebate” relates only to the employees eligible for these measures, and is not a workforce-wide value. OECD average is an unweighted average. Source: OECD Tax database; Ministry of Finance and Economy, and OECD estimates for 2021.
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Main recommendations to raise employment • Improve the composition of public spending with strengthened expenditure reviews and a succinct set of policy performance indicators. • Reform taxes to support higher employment, with a lower tax wedge and reduce income tax disincentives for second earners - particularly women • Increase access to adult skills attainment, with improved Training Fund application processes and better coordinated public employment services • Improve access to quality childcare across all regions • Contain pension spending by allowing the early retirement schemes to expire, and link life expectancy and retirement age. 28
THE NATIONAL RESILIENCE AND RECOVERY PLAN CAN HELP SUSTAIN INVESTMENTS AND GROWTHSUPPORTING REFORMS
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The National Recovery and Resilience Plan will support investment and structural reforms Next Generation EU grants and loans, % of GDP 25 Grants
Loans
20 15 10 5 0
Note: 2020 GDP at current prices are used. Loans are assumed at 6.8% of 2019 gross national income for some countries. Actual amo unts may differ. Figure does not include the additional own resources included in the Italian National Recovery and Resilience Plan. This is equivale nt to 1.2% of 2020 GDP. Source: European Commission, https://ec.europa.eu/info/strategy/recovery-plan-europe_en; and EUROSTAT.
30
Sustaining the National Recovery Plan reforms can boost living standards The impact of reforms on real GDP per capita Thousand EUR 36 34
32 30 28
26 24 22
20
2020 GDP per capita
2030 GDP per capita with no .. with structural reforms and .. with additional structural reforms investment in National Recovery reforms and efforts to support and Resilience Plan employment
Source: OECD projections, assumes no impact from inflation.
31
Reforms should boost growth which is key for lower debt % of GDP
Public debt-to-GDP ratio, alternative reform scenarios
300 2020 policies, primary balance not adjusted for ageing expenses ¹ 250
Implement National Recovery and Resilience Plan, primary balance of 1.5% Additional recommended policy reforms, primary balance of 1.5%
200 150 100
50
2000
2010
2020
2030
2040
2050
1. A primary balance of 1.5% is assumed, and then ageing expenses are added to the fiscal profile. This profile illustrates the impact of ageing policies on the budget. It does not reflect an expected fiscal strategy. Source: Ministry of Finance and Economy; OECD (2021), OECD Economic Outlook (database); D. Turner and Y. Guillemette (2021) and OECD calculations.
2060
32
Strengthening the public sector’s effectiveness is key Readiness for economic transformation
Government effectiveness 2019 1.5
1.0
0.5
0.0
2020
80
Italy
EU22
OECD
Trust in government 2020 or latest 80
70
70
60
60
50
50
40
40
30
30
20
20
10
10
0
Italy
EU18
OECD
0
Italy
EU22
OECD
Note: Whiskers show the range between the first to last decile of countries.
Sources: World Bank (2020), Worldwide Governance Indicators (database); World Economic Forum (2021), The Global Competitiveness Report 2020; OECD (2021), How's Life: Well-being (database).
33
Accelerating public investment can help lagging regions Municipal governments’ average disbursement rates of EU public investment funds % 100
Over 2014-20, by region and municipality size Small
Medium
Large
80
60
40
20
0
North-east North-west Center South Note: "Small’ municipalities" population is below 50 000, "medium" between 50 000 and 250 000, and large above 250 000. Source: OpenCivitas database and OECD calculations. 34
Capacity constraints to public investment need addressing Major obstacles to municipal infrastructure investment 2019, % of all municipalities surveyed Availability of funds Italy EU
Technical capacity Length of regulatory process Agreement among stakeholders Regulatory uncertainty Agreement with other municipalities Technological uncertainty Core infrastructure 0
10
20
30
40
Source: European Investment Bank Group Survey on Investment and Investment Finance 2020.
50
60
35
Many public employees are nearing retirement Public employees
Public sector employees by age group
Total, per 1000 population, 2020
Central government, 2020
Source: OECD Economic Outlook database; and ILO, ILOSTAT (database)
ITA
ESP
SWE
CAN
FRA
OECD
GBR
USA
ESP
DEU
ITA
0
JPN
20
18-34 years old
USA
40
DEU
60
FRA
80
35-54 years old
OECD
100
CAN
120
100 90 80 70 60 50 40 30 20 10 0
AUS
140
JPN
55 years or older
GBR
160
36
Progress with e-government will help but users’ take-up has lagged Share of individuals using the internet to interact with public authorities
OECD Digital Government Index 2019 0.8
100 %
0.7
90
0.6
80
2010
70
0.5
60
0.4
50
0.3
40
30
0.2
20
0.1
Note: The OECD Digital Government Index aims to measure the digital transformation of the public sector, understood as the transition from e-government to digital government, measured across six dimensions. Source: OECD Survey on Digital Government 1.0
SWE
FRA
CAN
GBR
DEU
OECD
ESP
0
ITA
KOR
GBR
JPN
CAN
ESP
FRA
ITA
OECD
DEU
10
SWE
0
2019
37
Main recommendations to raise public sector effectiveness • Rejuvenate the public sector workforce, through more agile recruiting, training and career management • Consolidate smaller agencies’ public procurement activities • Clarify competencies of different levels of government, supported by bodies that encourage effective practices • Continue providing an architecture and platforms that enable public agencies’ digitalisation 38
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http://www.oecd.org/eco/surveys/economic-survey-italy.htm OECD Economics OECD
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