Italy needs new impetus for growth sectors

DIW Weekly Report 9/2019 p. 112-121

Italy has not recovered from the economic consequences of the financial and sovereign debt crisis for a good ten years. This is partly due to Italy’s traditional growth drivers, namely manufacturing and construction, both of which have seen their employment levels fall by 700,000. On the other hand, unlike in many other EU countries, the new growth sectors in Italy, such as knowledge-intensive services, are stagnating.

The structural reforms carried out in parallel have focused on deregulating labour markets and restructuring the state budget. However, other framework conditions, such as a well-functioning innovation system or substantial investment in research and development, have been neglected. The government should give priority to these reforms in the future to stimulate business in the new growth sectors in the medium term.

Calculations show that higher government spending, within the limits of the resources foreseen in the latest draft budget, can in principle have a positive effect on value-added in the short term and alleviate the adjustment costs of pending reforms. However, the current government’s current plans hardly meet these criteria.

Link to the article in the DIW Weekly Report