Why Italy could soon be Europe's fastest growing economy

Could Europe’s next growth locomotive be Made in Italy?


BY: ALESSIO TERZI

Important reforms put in place over the past months mean that Italy could indeed become the fastest growing large economy in the euro area in a not-too-distant future, writes Alessio Terzi at Bruegel. A substantial liberalisation of the labour market – embodied in the so-called ‘Jobs Act’ – could boost Italy’s appallingly low employment rate by as much as 10 percentage points over the long term according to the Forum Ambrosetti


Important reforms put in place over the past months, combined with a conjunction of particularly supportive external factors, mean that Italy could indeed become the fastest growing large economy in the euro area in a not-too-distant future.

“I bet you that in the next 10 years, Italy will return to be the [economic] leader of Europe, the locomotive of Europe.” When reading these words onTIME magazine in late April 2014, many must have thought that Italy’s then new Prime Minister Matteo Renzi was at best youthfully delusional, at worst a dazzling propagandist.

Scepticism was all but unwarranted for a country that, over the past decades, had proved serially impossible to reform and, as a consequence, is the only EU member state, together with Greece, where real GDP is now below its 2000 level.

However, one and a half years down the road, the Prime Minister’s optimistic view for Italy starts no longer looking like a completely far-fetched scenario, but rather as a possibility. Important reforms put in place over the past months, combined with a conjunction of particularly supportive external factors, mean that Italy could indeed become the fastest growing large economy in the euro area in a not-too-distant future.

Figure 1. Real GDP (2000=100)




Source: Eurostat

Notwithstanding a wafer-thin majority in Parliament, Renzi has managed to secure approval for reforms that have the potential to restructure deeply the Italian economy.

A substantial liberalisation of the labour market – embodied in the so-called ‘Jobs Act’ – could boost Italy’s appallingly low employment rate by as much as 10 percentage points over the long term according to a survey of business leaders attending the Forum Ambrosetti, and reverse the decline in labour productivity observed during the 2000s.

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