{ "title": "Italy: Staff Concluding Statement of the 2024 Article IV Mission", "publication": "IMF News, May 20, 2024", "sourceUrl": "https://www.imf.org/en/news/articles/2024/05/20/italy-concluding-statement-of-the-2024-article-iv-mission", "canonical": "https://www.imf.org/en/news/articles/2024/05/20/italy-concluding-statement-of-the-2024-article-iv-mission", "overlayPath": "/en/news/articles/2024/05/20/italy-concluding-statement-of-the-2024-article-iv-mission/index.md", "summary": "The economy recovered well from the sequential pandemic and energy price shocks on the rebound in tourism and substantial policy support. However, growth has moderated.", "publishDate": "2024-05-20", "sections": [ { "heading": "Mission context and headline assessment", "content": "- Mission period: May 6 – 20, 2024; led by Rachel van Elkan with Aleksandra Babii, Aidyn Bibolov, Yan Chen, Gee Hee Hong, and Sylwia Nowak.\n- Headline assessment:\n - The economy recovered well from sequential pandemic and energy price shocks on the rebound in tourism and substantial policy support.\n - Growth has moderated; expansionary fiscal policy has kept the deficit and public debt very high, elevating Italy’s risk premium and acting as a drag on private sector investment." }, { "heading": "Recent performance and near-term outlook", "content": "- Key statistics and past performance:\n - Activity expanded by 0.9 percent in 2023.\n - Activity expanded by 0.6 percent (year-on-year) in Q1:2024.\n - GDP surpassed its pre-COVID level by 4.5 percent.\n- Drivers of recent performance:\n - Exuberant spending on home renovations financed with generous tax credits.\n - Ramp up in utilizing large EU-financed National Recovery and Resilience Plan (NRRP) resources.\n - Other supports: publicly-guaranteed loans, energy compensation measures, pandemic-era transfers.\n - Employment rose broadly in line with GDP, notably in services and construction, partly due to labor cost subsidies.\n - Rapid and orderly disinflation led by the drop in energy prices; current account returned to surplus from a large, but temporary, deficit.\n- Projections:\n - GDP is projected to rise by 0.7 percent in 2024 and 2025.\n - Headline inflation is projected to fall to an average of 1.7 percent in 2024 and return to the 2 percent target in 2025.\n - Forecast narrative: NRRP-related spending (to be finalized by mid-2026) largely offsets phasing out of Superbonus-boosted residential investment in 2024–25; a temporary slowdown expected in 2026 and 2027 as NRRP is completed unless the allowable spending period is extended.\n- Risks to the outlook (tilted to the downside):\n - Intensification of regional conflicts causing new supply shocks and commodity price volatility.\n - Spillovers from sharp slowdowns in major trading partners, geoeconomic fragmentation, extreme climate events.\n - Significantly higher-than-expected interest rates leading to repricing of Italian government bonds and deteriorating public debt dynamics.\n - Domestic risks: failure to complete NRRP spending, ineffective reform implementation, large fiscal deficits eroding investor confidence." }, { "heading": "Fiscal policy — findings and recommendations", "content": "- Findings:\n - Expansionary fiscal policy has supported recovery but kept deficit and public debt very high.\n - Already-accrued tax credit liabilities will further add to debt in coming years.\n - The primary deficit has decreased, but remains far from the pre-pandemic 1¾ percent primary surplus.\n - A much higher primary surplus closer to 3 percent of GDP will be required to ensure a gradually declining debt ratio.\n - Shift in 2024 to cash-based accounting for newly-authorized housing tax credits will—under a recent law—no longer allow transferability.\n- Near-term recommendations (frontloading adjustment):\n - Faster roll back of inefficient or temporary measures, including terminating housing renovation subsidies and measures to compensate for high inflation.\n - Use simultaneous ramp up in NRRP spending and reforms to cushion activity while frontloading adjustment.\n - Frontloading supported by benign global risk perceptions and buoyant tax revenues.\n- Medium-term recommendations:\n - Maintain a primary surplus of around 3 percent of GDP; consider additional fiscal effort to finance productivity-enhancing investments and address latent spending pressures, especially from aging.\n - Considerable savings to finance growth- and efficiency-enhancing measures by:\n - Replacing tax wedge cuts and hiring subsidies with measures that permanently boost labor productivity.\n - Further streamlining pension spending by raising the effective retirement age and avoiding costly early retirement schemes.\n - Rationalizing tax expenditures to broaden the base, increase progressivity and reduce complexity.\n - Improving control and oversight of tax credits by requiring explicit prior authorization, monitoring real-time take up, and annulling tax credits absent full ex-post compliance with program goals.\n- Budget process and fiscal governance:\n - Move to a fully-fledged multi-year fiscal plan as required under the new EU governance framework to reconcile medium-term priorities with available resources.\n - Require realistic macroeconomic and fiscal forecasts and robust monitoring and control systems to limit deviations from medium-term targets.\n - Publicly-guaranteed loans should not substitute for on-budget spending; guarantees should be prudently managed, centrally monitored, well provisioned, and the stock of outstanding guarantees kept on a downward path." }, { "heading": "Financial sector resilience — findings and recommendations", "content": "- Current position:\n - Adjustment to tighter financial conditions proceeded smoothly; banking system remains sound.\n - Policy rate increases quickly passed through to sovereign bond yields and bank lending rates.\n - Widening interest margins and reduced need for loan-loss provisions pushed up bank profits; lower risk-weighted assets raised capital ratios to record levels.\n - Significant decline in stock of credit to firms; some firms used cash buffers and current profits to accelerate loan redemptions.\n - Banks maintain ample liquidity despite reducing most pandemic-era long term liabilities to the ECB; funding more expensive and competition for retail savings from government bonds has increased.\n- Risks:\n - Sustained high interest rates and declining liquidity buffers could weaken borrowers’ debt servicing capacity and lead to future weaknesses.\n - Stability risks could rise as tightening cycle matures and effects of exceptional support measures wane.\n- Policy recommendations to strengthen resilience:\n - Use current exceptional net interest income to reinforce resilience by requiring banks to lock in a modest part of their existing capital headroom.\n - The reserve accumulation option under the excess profit tax on banks is helpful but not calibrated to target systemic and individual bank risks.\n - Recent increase in capital buffer requirement for “other systemically important institutions” and activation of a releasable systemic risk buffer are welcome.\n - Ensure IFRS9 loan classification is sufficiently forward looking; discourage practice of replacing borrower default probability with guarantors’.\n - Ensure banks’ funding mix includes adequate long-term liabilities to limit liquidity risk.\n- Debt workouts and resolution:\n - Strengthen mechanisms for debt workouts and disposals to prevent buildup of nonperforming exposures and reduce borrowers’ burden from legacy debt.\n - Debt resolution and insolvency procedures should be less time consuming and costly; time to conclude court cases should be considerably shortened by streamlining and digitalizing procedures and adding support staff.\n - Faster case turnover will raise absorptive capacity of secondary-market buyers, increase recovery rates, reduce warehousing of legacy claims, and speed cleansing of stressed borrowers’ accounts.\n - Any scheme allowing borrowers to buy back at a lower price their previously-sold bad loans risks undermining the secondary market and eroding payment discipline.\n- Focus on less significant banks:\n - Continue strengthened supervisory and regulatory oversight of smaller banks.\n - Encourage consolidation or mutual cooperation in areas such as digitalization to reinforce efficiency and resilience, provided sectoral and geographical concentrations are not increased." }, { "heading": "Structural reforms and medium-to-long term growth priorities", "content": "- Overarching recommendation:\n - Replace near-term demand stimulus focus with market-friendly support for medium- and long-term growth.\n- Key priorities:\n - Reinvigorate productivity through:\n - Full and timely execution of the NRRP and a successor medium-term structural fiscal plan focusing on critical public infrastructure, research and innovation, education system reform, and improving the business climate.\n - Investments in education reform and skill upgrading, and closing investment gaps.\n - Diffusion of frontier technologies and deepening capital markets within the EU to diversify financing sources beyond traditional bank loans.\n - Avoid frequent changes to tax and other policies; limit and target industrial policies where market failures exist.\n- Labor force expansion and demographic policy:\n - Address low fertility and low female labor force participation to boost growth prospects.\n - Identify barriers that vary by region, family income, and individual characteristics; design well-targeted policies.\n - Policy measures suggested:\n - Make sufficient childcare capacity available and ensure childcare and school opening times are compatible with regular working hours.\n - Remove policy-induced disincentives for female employment, including favorable tax treatment of single-earner families and minimum required lifetime social security contributions that deter formal employment.\n - Increase transparency of gender wage differentials for comparable work and make parental leave gender neutral.\n - Target financial assistance to poorer households and structure it to avoid discouraging women’s labor market participation.\n - Acknowledge that reversing demographic trends is unlikely in coming decades, but well-designed policies may slow the declining birth rate and lift female participation." }, { "heading": "Closing", "content": "- The mission expressed gratitude to the Italian authorities and private sector counterparts for their time, helpful discussions, and hospitality.\n\nSource: Italy: Staff Concluding Statement of the 2024 Article IV Mission (May 20, 2024).\n\n---\n\n\n References\n\n- Italy and the IMF\n- IMF Policy Advice -- A Factsheet\n- Mission Concluding Statements\n- PRESS CENTER\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2024/05/20/italy-concluding-statement-of-the-2024-article-iv-mission" } ], "bullets": [ "[Markdown version](/en/news/articles/2024/05/20/italy-concluding-statement-of-the-2024-article-iv-mission/index.md)", "[Structured JSON version](/en/news/articles/2024/05/20/italy-concluding-statement-of-the-2024-article-iv-mission/index.json)", "[Bundle manifest](/en/news/articles/2024/05/20/italy-concluding-statement-of-the-2024-article-iv-mission/bundle-manifest.json)", "Published: May 20, 2024", "Mission period: May 6 – 20, 2024; led by Rachel van Elkan with Aleksandra Babii, Aidyn Bibolov, Yan Chen, Gee Hee Hong, and Sylwia Nowak.", "Headline assessment:", "Key statistics and past performance:", "Drivers of recent performance:", "Projections:", "Risks to the outlook (tilted to the downside):", "Findings:", "Near-term recommendations (frontloading adjustment):", "Medium-term recommendations:", "Budget process and fiscal governance:", "Current position:", "Risks:", "Policy recommendations to strengthen resilience:", "Debt workouts and resolution:", "Focus on less significant banks:", "Overarching recommendation:", "Key priorities:", "Labor force expansion and demographic policy:", "The mission expressed gratitude to the Italian authorities and private sector counterparts for their time, helpful discussions, and hospitality.", "[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)", "[Mission Concluding Statements](https://www.imf.org/en/news/searchnews)", "[PRESS CENTER](http://presscenter.imf.org/)", "[https://www.imf.org/en/home](https://www.imf.org/en/home)" ], "alternates": { "markdown": "/en/news/articles/2024/05/20/italy-concluding-statement-of-the-2024-article-iv-mission/index.md", "json": "/en/news/articles/2024/05/20/italy-concluding-statement-of-the-2024-article-iv-mission/index.json", "bundleManifest": "/en/news/articles/2024/05/20/italy-concluding-statement-of-the-2024-article-iv-mission/bundle-manifest.json" }, "generatedAtUtc": "2026-09-26T03:00:17.181Z" }