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PRELIMINARY EDITION
ITALY
After recovering throughout most of 2004, the economy fell into recession early in 2005. High unit
labour cost growth, coupled with euro appreciation and strengthening global competition in Italys
areas of specialisation, have entailed large losses of market shares. Domestic demand, once sustained
by strong employment growth and low real interest rates, has been slowing. Activity is projected to
strengthen towards end-2005, reflecting a renewed upturn in world trade, improving labour
productivity, and tax cuts.
Structural reforms are needed to address the underlying causes of poor competitiveness. Wage
bargaining should be adapted to better reflect productivity developments. Sheltered sectors should
be made subject to more effective competition to reduce downstream costs and inflation pressures.
Debt reduction should be quickened to make room for lower taxes and higher human and physical
capital investments.
Italy: Demand and output
2001
Current prices
ivyyv
Private consumption1
Government consumption
Gross fixed investment
Machinery and equipment
Construction
Residential
Non-residential
2002
2003
2004
2005
2006
731.6
229.5
240.5
140.2
100.3
53.9
46.4
0.7
0.2
-1.6
-3.1
0.4
0.3
0.4
1.7
0.2
2.0
2.1
1.8
1.9
1.8
0.9
0.4
1.3
0.9
0.4
1.3
1.1
-0.3
0.8
0.1
0.0
0.2
1.5
0.0
1.5
-3.2
-0.5
-0.8
-1.9
1.3
-0.9
3.2
2.5
0.2
0.0
2.8
-0.8
5.8
6.8
-0.3
1 218.3
1.0
0.6
1.9
1.1
3.0
2.9
3.1
345.9
328.4
17.5
1.4
2.3
-1.8
-4.4
1.7
2.8
0.3
1 201.6
- 0.7
1 200.8
0.4
1.9
1.3
-0.1
3.3
4.5
1.9
0.4
0.4
1.0
-0.6
1.1
Note: Economic activity in 2004 and 2005 is subject to unusually large changes in the number of working days. The
OECD projections are adjusted for this effect, whereas the official government projections are not. Other things equal,
the adjusted projections are lower for 2004 and higher for 2005 than the unadjusted projections
1. Final consumption in the domestic market by households.
2. Contributions to changes in real GDP (percentage of real GDP in previous year), actual amount in the first column.
Source: OECD Economic Outlook 77 database.
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