## IMF Executive Board Concludes 2022 Article IV Consultation with Italy _IMF News, August 1, 2022_ ## Source details **Canonical URL:** [IMF Executive Board Concludes 2022 Article IV Consultation with Italy](https://www.imf.org/en/news/articles/2022/07/28/pr22278-italy-imf-executive-board-concludes-2022-article-iv-consultation) ## Other formats - [Markdown version](/en/news/articles/2022/07/28/pr22278-italy-imf-executive-board-concludes-2022-article-iv-consultation/index.md) - [Structured JSON version](/en/news/articles/2022/07/28/pr22278-italy-imf-executive-board-concludes-2022-article-iv-consultation/index.json) - [Bundle manifest](/en/news/articles/2022/07/28/pr22278-italy-imf-executive-board-concludes-2022-article-iv-consultation/bundle-manifest.json) ## Bibliographic details - Published: August 1, 2022 --- ### Overview - On July 27, 2022, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Italy. - The Italian economy rebounded vigorously from the COVID-related drop in output and has avoided economic scarring. - Employment and labor force participation have fully recovered. - Banks’ nonperforming loans have continued to decline and their capital positions have strengthened. - New challenges: war in Ukraine, COVID-related disruptions to global supply chains, higher energy prices, broader inflationary pressures, shortages of key products, slowing global demand, and a severe drought in the Northern part of the country. ### Short-term outlook and risks - Growth projections: - 2022: expand by 3 percent (mostly on strong carryover from last year). - 2023: further slowdown to around ¾ percent. - Inflation projections: - Annual average inflation is expected to peak in 2022 at 6¾ percent and to moderate gradually thereafter. - Medium-term: - As energy prices moderate and with public investment under the National Recovery and Resilience Plan (NRRP), growth is forecast to pick up in subsequent years. - Key downside risks: - A further spike in energy prices and/or a rapid tightening of financial conditions could compress growth and weigh on fiscal consolidation. - Difficulties delivering NRRP investments and reforms would reduce demand support, weaken longer-term productivity enhancements, and delay EU financing. - Sustained high inflation could erode recent external competitiveness gains. - A complete suspension of Russian energy imports in the coming months could reduce output significantly this year and next relative to the baseline. - Other pressures: - Yields on Italian government bonds have risen and spreads have widened on prospective monetary policy tightening and political uncertainty. - The severe drought will further pressure food prices and exacerbate energy security challenges. ### Executive Board Assessment - Directors commended the authorities’ effective pandemic policy response that delivered a robust and full recovery. - Directors noted major new challenges from elevated energy prices related to Russia’s invasion of Ukraine, tightening financial conditions, global supply chain disruptions, and political uncertainty. - Risks associated with Italy’s high public debt were highlighted, given longstanding weak productivity. - Fiscal guidance: - Need for sustained, decisive improvements in fiscal balances, commencing this year by saving part of revenue overperformance. - Rationalize current spending, broaden the tax base, strengthen tax compliance, and implement growth-enhancing reforms (public administration, civil justice, and competition) to achieve and maintain a sizable primary surplus and keep public debt on a firmly downward path. - Energy and social measures: - Commended pre-emptive efforts to strengthen energy security. - Recommended that compensation for higher energy prices be temporary and targeted, and that price signals be retained. - Banking sector: - Welcomed resilience of the banking sector but suggested caution given the highly uncertain outlook. - Banks should prepare for severe downside scenarios; temporary capital conservation may be warranted in specific cases. - Continued close monitoring, including of smaller and weaker banks, is important. - More efficient debt restructuring to help firms avoid financial distress would be necessary. - Commended progress in implementing the FSAP recommendations and encouraged prioritizing key remaining recommendations. - NRRP and reforms: - Welcomed commitment to the National Recovery and Resilience Plan and timely implementation of Next Generation EU-related targets and milestones. - Recommended continued progress to lift labor productivity, investment, and potential growth, and to accelerate the green transition. - Improving carbon tax design, making green investment incentives more cost-effective, and streamlining approval procedures for investments in renewables would help decarbonization and energy security. - A number of Directors saw merit in a coordinated EU approach on carbon taxation. - Encouraged continued strengthening of the anti-corruption and AML/CFT frameworks. ### Selected economic indicators, 2019–23 - Output - Real GDP growth (%): 2019: 0.5; 2020: -9.0; 2021: 6.6; 2022: 3.0; 2023 (Proj.): 0.7 - Employment - Unemployment (%): 2019: 9.9; 2020: 9.3; 2021: 9.5; 2022: 8.8 - Prices - Inflation (%, pa): 2019: 0.6; 2020: -0.1; 2021: 1.9; 2022: 6.7; 2023 (Proj.): 3.5 - General Government Finances - Revenue (% GDP): 2019: 46.9; 2020: 47.4; 2021: 48.3; 2022: 48.6 - Expenditure (% GDP): 2019: 48.5; 2020: 57.0; 2021: 55.4; 2022: 54.2; 2023 (Proj.): 52.2 - Fiscal balance (% GDP): 2019: -1.5; 2020: -9.6; 2021: -7.2; 2022: -5.6; 2023 (Proj.): -3.9 - Public debt (% GDP): 2019: 134.1; 2020: 155.3; 2021: 150.9; 2022: 147.7; 2023 (Proj.): 146.3 - Money and Credit - Credit to the private sector (% change) 1/: 2019: 0.2; 2020: 4.7; 2021: 2.1; 2022: . . . - Corporate bank loan rates under 1 million euros (%): 2019: 1.8 - Balance of Payments - Current account (% GDP): 2019: 3.2; 2020: 3.7; 2021: 2.4; 2022: 1.2 - Outward FDI (% GDP): 2019: 0.1; 2020: 0.0 - External debt (% GDP): 2019: 124.2; 2020: 139.9; 2021: 137.6; 2022: 137.2; 2023 (Proj.): 137.1 - Exchange Rate - REER (% change): 2019: -2.4; 2020: -0.2; 2021: … 1/ Twelve-month credit growth, adjusted for securitizations. *IMF Executive Board assessment transmitted to the authorities at the conclusion of the Article IV consultation.* --- ## References - [https://www.imf.org/-/media/images/imf/bios/imfboard.jpg](https://www.imf.org/-/media/images/imf/bios/imfboard.jpg) - [The Executive Board](https://www.imf.org/external/np/sec/memdir/eds.aspx) - [IMF COVID-19 Hub](https://www.imf.org/en/Topics/imf-and-covid19) - [Policy Tracker](https://www.imf.org/en/Topics/imf-and-covid19/Policy-Responses-to-COVID-19) - [Financial Assistance](https://www.imf.org/en/Topics/imf-and-covid19/COVID-Lending-Tracker) - [Questions & Answers](https://www.imf.org/en/About/FAQ/imf-response-to-covid-19) - [Italy and the IMF](http://www.imf.org/external/country/ITA/index.htm) - [IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance) - [Press Releases](https://www.imf.org/en/news/searchnews) - [PRESS CENTER](http://presscenter.imf.org/) - [http://www.IMF.org/external/np/sec/misc/qualifiers.htm](http://www.imf.org/external/np/sec/misc/qualifiers.htm) - [https://www.imf.org/en/home](https://www.imf.org/en/home) _Source: https://www.imf.org/en/news/articles/2022/07/28/pr22278-italy-imf-executive-board-concludes-2022-article-iv-consultation_