1 Stability and Growth Economic recovery and fiscal adjustment in Italy Tommaso Padoa-Schioppa...
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Transcript of 1 Stability and Growth Economic recovery and fiscal adjustment in Italy Tommaso Padoa-Schioppa...
1
Stability and GrowthEconomic recovery and fiscal adjustment in Italy
Tommaso Padoa-Schioppa Italian Economy and Finance Minister
London, July 25 , 2007
2
Cyclical recovery in the Eurozone
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-1
0
1
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3
4
5
6
1Q96 1Q97 1Q98 1Q99 1Q00 1Q01 1Q02 1Q03 1Q04 1Q05 1Q06 1Q07
% y
ear-
on
-yea
r
-2
-1
0
1
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% y
ear-
on
-yea
r
US real GDP growth
Euro area real GDP growth
Faster economic growth in the Eurozone than in the US, as a result of a stronger domestic demand.
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Italy is catching up...
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-1
0
1
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1Q90 1Q91 1Q92 1Q93 1Q94 1Q95 1Q96 1Q97 1Q98 1Q99 1Q00 1Q01 1Q02 1Q03 1Q04 1Q05 1Q06 1Q07
% q
oq
saa
r
-4
-3
-2
-1
0
1
2
3
4
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% y
ear-
on
-yea
r
GDP, quarterly annualised change (LHS)
GDP, annual change (RHS)
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… but trend growth remains below EU standards
0,0
1,0
2,0
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5,0
6,0
1960s 1970s 1980s 1990-1997 1998-2006
UK Germany France Italy
Growth rates, 10-year averages
Italy
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Italy’s current recovery:
In 2007: GDP growth projected at 2.0 per cent
Domestic demand improving
Machinery investment recovering
Exports performance positive, despite strong euro
Personal consumption sustained by rising confidence (linked to employment growth)
Output growth above potential (shrinking output gap)
In 2008: growth pattern roughly unchanged
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Domestic demand rising
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0
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1Q90 1Q91 1Q92 1Q93 1Q94 1Q95 1Q96 1Q97 1Q98 1Q99 1Q00 1Q01 1Q02 1Q03 1Q04 1Q05 1Q06
% y
ea
r-o
n-y
ea
r
-3
-2
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0
1
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3
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5
% y
ea
r-o
n-y
ea
r
GDP, contribution by:Final domestic demandNet exports
Domestic demand, and especially investment, led the upswing. Industrial output performance was particularly good, following years of weakness.
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Export recovering, as its composition changes
-10
-5
0
5
10
15
20
25
30
35
1Q2005 2Q2005 3Q2005 4Q2005 1Q2006 2Q2006 3Q2006 4Q2006 1Q2007
% y
ea
r-o
n-y
ea
r
Food Textiles Leather Wood & prodMetals & prod Machinery Electronic eq.t Transport
Exports by sector:
Export performance positive despite strong euro. Traditional exports (textiles, leather) gradually replaced by higher-tech products (capital goods, metal products).
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FDI (in and out) rising gradually
0
50000
100000
150000
200000
250000
300000
350000
2000 2001 2002 2003 2004 2005
mil
lio
ns
of
US
do
lla
rs a
t c
urr
en
t p
ric
es
Inward FDI stocks Outward FDI stocks
The Italian economy becomes increasingly open. Government measures to boost domestic competition and lower social security contributions support FDIs.
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Italy’s government bonds: a safe investment
0,0
100,0
200,0
300,0
400,0
500,0
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800,0
07
/03
/19
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/20
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07
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07
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/03
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pe
rce
nt
Spread over Bund at 10 Years
Over the 1990s Italy’s government bond spreads over Bunds have significantly shrunk.
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Italy’s deep rooted economic challenges
Strengthening labor participation (women, young)
Attracting business through better regulation and lower tax burden
Reducing public debt
Reducing and improving public expenditure
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The Government’s economic strategy
Reducing public debt
Improving the quality of public spending
Modernizing the welfare system
Deregulating, fostering competition
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Specific areas for action
Pension system; labor market
Competitiveness policies (liberalizations, education, research, environment)
Quality of public finance
Budget classification reform
Spending review
Reform of public administration
Agreement with Trade Unions to improve productivity
Rationalization of public offices
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Public finances
Compliance with the EU targets: deficit below 3% of GDP in 2007 and beyond
Buoyant revenues: effective implementation of measures against tax evasion (tax base growing faster than GDP)
However: current expenditure is not yet under control
14
The Government medium-term fiscal strategy
No need for corrective fiscal adjustment in 2007 (mid year) and 2008
“Use part of extra revenues for social and growth policies:
6.5 bn in 2007, 1.5 in 2008”
2007 2008 2009 2010 2011
Budget balance (policy scenario) -2.5 -2.2 -1.5 -0.7 0.1
Required adjustment (bn euro) 0.0 0.0 -6.3 -12.8 -24.2
% GDP 0.0 0.0 -0.4 -0.7 -1.4
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The structural adjustment
Structural adjustment of almost 2% of GDP in 3 years (2006-2008)
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-1
0
1
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3
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2006 2007 2008 2009 2010 2011
Cumulative change in structural deficit
Structural deficit
Output gap
% of GDP
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Conclusions
• Cyclical upswing is underway
• Deep rooted supply-side challenges remain
• Government strategy: enhancing potential growth; making Italy more attractive to investors
• Fiscal consolidation is underway
• Public finances still vulnerable due to high debt