Italy has been a chronic eurozone underperformer since the incep- tion of the single currency area, with real GDP -.- smaller in ---- relative to ----, weighed down by stagnant productivity growth and a steady loss of competitiveness. Long-term chal- lenges are compounded by a massive public debt burden and poor demographic profile, which implies that long-term fiscal consolidation is needed. ...Without more progress on major structural reform initiatives, both on the domestic and eurozone level, we forecast a very subdued growth outlook over the coming decade and believe the public debt load will prove a major strain on the economy over the long term. Private Consumption: Household spending will be an impor- tant driver of real GDP growth over the coming years, although growth rates will remain subdued relative to eurozone peers as structural factors such as high youth unemployment and stark regional wealth divides act as multi-year constraints. In one bright spot, household debt ratios in Italy are closer to that of emerging as opposed to developed European peers, which im- plies that debt repayment burdens are low and that consumers have room to leverage up as incomes rise and labour market conditions improve. ...We forecast public consumption to have a neutral contribution to headline growth over coming years, while declining gradually as a percent of GDP. Gross Fixed Capital Formation: Italy has undergone a pro- longed slump in fixed investment spending, which in ---- was -- Business Monitor International Ltd www.bmiresearch.com
...However, looking in more detail suggests the Jobs Act has had little effect so far. ...As for the unemployment rate, workers transi- tioning from unemployed to inactive were a more significant driver of reductions in the headline figure than were workers transitioning from unemployed to employed. While the number of permanent workers did in fact increase significantly, much of this came from firms transitioning current employees from temporary to permanent contracts, and firms taking advantage of the tax breaks on offer. With tax incentives no longer on the table in ----, we expect the pace of hiring to slow, especially given the dip in business confidence levels at the start of the year. More broadly, we continue to view the Jobs Act as a positive development for Italy over the long term. That said, in isolation it cannot provide a durable boost to hiring without easier access to credit, a lower business tax burden and more robust confidence in the country s economic recovery.
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