On 23 July 2024 the IMF issued a report following the consultation with Italy under Article IV of the IMF’s articles of agreement.

The report noted that Italy’s economy has recovered from the pandemic and energy price shocks, with economic activity expanding by 0.9% in 2023. The economic recovery has been sustained by private consumption and by investment, which was encouraged by tax credits for home renovations and purchases of capital equipment. Employment has risen at the same time as real activity, revealing that there are skill shortages. The combination of a low birth rate and low female participation in the labour force indicates that there will be accelerated declines in the population and the number of people in the workforce.

Economic growth will average around 0.75% in 2024/26, with continuing reduction in inflation. Growth could be adversely affected if there is an intensification of regional conflicts, sharp slowdowns in the economies of major trading partners, deepening geopolitical fragmentation or significantly higher interest rates. The IMF report noted that the economy’s capacity to sustain growth is being affected by weak productivity, the continuing demographic decline, and difficulties arising from the climate, digital and geopolitical transitions.

The report indicates that there is an urgent need for decisive, frontloaded fiscal adjustment. Italy should cancel the measures taken to cushion past shocks, curtail inefficient tax and spending policies and save the funds resulting from fiscal overperformance. The IMF directors are calling for a base-broadening and revenue enhancing tax reform; strengthened control of tax credits; streamlined pension spending and gradual decrease of publicly guaranteed loans.

The report notes that Italy needs to increase productivity and boost the supply of skilled labour. A plan is needed to facilitate the green and digital transitions and to focus on public infrastructure, education reform and improvements to the business climate. Industrial policy should be used selectively to correct market failures. Improvements to the balance of work and family life could support the labour supply in the near term and into the future.