With forecasts of 1.5% GDP growth for the year, Italy's economy continues its gradual recovery after many years of struggle. The country saw a loss of around 9% of its GDP between 2008 to 2013 during the financial crisis. However, recent figures show a 0.4% reduction in unemployment as business confidence grows and Italy benefits from the general economic improvement across Europe. Yet for all the positive signs, structural issues still remain in the economy, which along with future political elections could have a negative impact.
Underlying Problems Remain
Italy's economy has been hampered by a number of underlying issues, many of which still persist today. Low productivity, red tape, lack of investment in education and huge public debt levels remain. The improved forecast in GDP growth rate still sees it well below the average Euro-zone rate of 2.2%, although it is narrowing. This follows an historic trend where Italy has grown at a slower rate compared to other European economies in good times, but fared much worse in the harder years.
Uncertain Political Times Ahead
The bailout of the bank Monte dei Paschi di Siena and the rescue of a further two lenders has aided the financial sector. However, from january on, there will be a reduction in the European Central Bank's purchase of government bonds. This could be an issue for Italy which requires 70 billion Euros to service its debt every year. Any necessary reforms also needs a stable government to push them through and Italy is due an election by may 2018. The Italian proportional representation system is likely to see the Five Star Movement gain over a quarter of the seats. Their refusal to work with the mainstream parties could lead to a fractured government with parties from both the left and right.