OECD Economic Survey of Italy 2021 - Presentation

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

12

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.

16

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

20

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.

27

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

29

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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This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area.

http://www.oecd.org/eco/surveys/economic-survey-italy.htm OECD Economics OECD

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