Italy’s two-year recession is over. According to revised data, GDP was unchanged in the third quarter of 2013 compared to the previous three months. Companies have begun to spend again: industrial production expanded by 0.5% in October. A forward-looking survey of activity in the sector rose to a two-and-a-half-year high.
However, the Italian economy is still 7.3% smaller than at its pre-crisis peak and has barely expanded in the past 20 years. Meanwhile, Matteo Renzi, the 38-year-old mayor of Florence, has been chosen as the new leader of the centre-left Democrats.
What the commentators said
The recession may be over, said Alen Mattich in The Wall Street Journal, but “normal growth is still a long way off”. Exports have ticked up but the domestic economy remains subdued due to a “crippled banking sector”, which continues to withdraw credit from the economy. The International Monetary Fund expects Italy to grow by 0.7% next year and then by 1% a year – the glacial pace common before the crisis.
Another key reason for that is the long list of urgently needed structural reforms to raise Italy’s long-term growth potential, and thus allay fears that Italy will eventually go bust.
The reforms are wearingly familiar, said Hugo Dixon on Breakingviews: privatisations to cut debt; lowering employment taxes and dismantling red tape in the labour market to encourage hiring; exposing a series of cossetted professions to competition; making the business start-up process easier; and reforming the judicial system.
These changes are all the more urgent now because Italy is unique in Southern Europe in having seen no improvement in its competitive position in the past five years, noted Simon Nixon in The Wall Street Journal.
The difficulty is confronting the vested interests, notably unions and employers, who have blocked previous reform attempts. The hope is that Prime Minister Letta, possibly galvanised by Renzi, will be able to push through changes now that the influence of his predecessor, Silvio Berlusconi, has waned. Given the evidence of recent years, however, we probably shouldn’t hold our breath.
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