OECD’s Gurría urges Italy to maintain reform momentum

Published on Tuesday, 25 September 2012 09:41
Posted by Scott Buckler

Italy has made a tremendous effort to speed up long-overdue economic reforms but it is now essential to maintain the momentum, OECD Secretary-General Angel Gurría said today

"These reforms have been courageous, ambitious and wide-ranging, " Mr Gurría said at a joint OECD-Italian government conference in Rome. "But," he added, "Resolute implementation and continuation of the reforms are crucial. The success of Italy in overcoming these challenges will be decisive not only for the Italian people but for Europe as a whole." (Read the speech)

The reforms already approved by the Italian government could raise the country's GDP by up to 4 % over the next 10 years, according to the OECD. Continuing the reform process would boost growth even more.

OECD analysis of the Italian economy presented at the conference underlines the scale of the challenge. Weak growth, high unemployment and high public debt has been compounded by slowing demand from trading partners and a persisting confidence crisis in the euro area.

Italy's labour productivity over recent years has been the weakest among OECD countries. Low productivity growth has resulted in rising unit labour costs, which has in turn damaged Italy's competitiveness and fuelled the current account deficit. Average annual growth in percentageGDP per hour worked, total economyAverage annual growth in percentage

Improving Italian competitiveness requires action on three fronts, according to the OECD: increasing productivity; keeping wage dynamics in tandem with productivity growth; and alleviating the tax burden on labour income – provided that this is done in a fiscally neutral manner.

The OECD says rigorous implementation of the reforms – across labour and product markets, and in the areas of innovation, education and public sector efficiency - is essential to boost productivity. Such rigour must not just be at the national level but extend to the regions and localities.

Among the measures the OECD recommends for aligning salaries more closely with productivity is decentralised wage bargaining.

Average annual growth in percentage Unit labour costs, total economy Average annual growth in percentage Unit labour costs - annual indicators, Main Economic Indicators (database)

The OECD also welcomes the new labour law which has set the basis to tackle the key long standing problems of the Italian labour market. The reform should be implemented swiftly, but also supported by well-targeted employment policies.

Additional reforms are also needed to support the most vulnerable so that they can cope with the hardship of the recession. Particularly important are targeted social policies, and further investments in education and skills.

The OECD report says Italy must continue on its path of bringing its budget into balance by 2013. The OECD welcomes the recent spending review for shifting the burden of consolidation towards lower spending  and away from higher taxation but adds that ministries need to routinely identify the least efficient areas of spending.


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