Italian GDP is expected to fall by around 0.2% this year before growing 0.5% in 2020, the Organisation for Economic Cooperation and Development said on Monday.
OECD added that expansionary fiscal policy and low growth will push the general Italian budget deficit to 2.5% of GDP in 2019 from 2.1% in the previous year.
The public debt as a share of GDP will remain high at 134% and is a source of risk, the OECD said.
The Paris-based OECD also issued warnings about the government's ‘citizenship wage’ basic income and ‘Quota 100’ pension reform that lowers the retirement age for some people.
The government’s 2019 budget “rightly aims to help the poor through the new Citizen’s Income but its growth benefits are likely to be modest, especially in the medium term with people that might be discouraging from finding jobs,” OECD report said.
“The reduction in the retirement age – to 62 years with at least 38 years of contributions – will lower growth in the medium run by reducing work among older people and will worsen intergenerational inequality and raise the public debt.”
“The Italian economy has many strengths. Exports, private consumption, investment flows and a dynamic manufacturing sector have driven growth in recent years while labour market reforms have helped raise the employment rate by three percentage points since 2015,” OECD Secretary-General Angel Gurría said.
“However, the country continues to face important economic and social challenges. Tackling them requires a multi-year reform package to achieve stronger, more inclusive and sustainable growth,” Gurría added.
Following the OECD report, investors remain confident in Milan. The FTSE Mib was slightly up by 0.1% on Tuesday afternoon.