Interview: Global factors, domestic frailties loom over Italy's recovery: economist

A series of domestic frailties and international uncertainties loom over the recovery path Italy has undertaken since late 2015, an expert told Xinhua in a recent interview.

The eurozone's third largest economy is expected to grow by 1 percent in 2017, according to latest estimates that confirmed the Italian government's official outlook.

The figure was forecast on Wednesday by the Organization for Economic Cooperation and Development (OECD), which slightly increased its previous projection of a 0.9 percent growth.

The OECD estimate was in line with those provided by the EU and the Bank of Italy. If correct, it would put Italy on a consistent path of recovery after the long and harsh economic crisis that hit the country.

Yet, it also confirmed that the recovery remains modest compared with other major western economies, and exposed to various risk factors in the short term. "There is a lot of political uncertainty at domestic, European and global level," Guido Tabellini, professor of Economics with Bocconi University in Milan, told Xinhua.

"Certainly, if U.S. President Donald Trump retains his campaign promises of protectionism, there would be the risk of a trade war, and this would be a very bad perspective for us," he stated.

A foreign trade slowdown due to protectionist measures would heavily affect Italy, which has just confirmed its rank as the world's eighth largest exporter in 2016, according to provisional data by Italy's Ministry of Economic Development. In addition, the United States has always been a key foreign market for the "Made in Italy" brand.

"Since our domestic demand remains subdued, having a large export market would be crucial in this phase," Tabellini said. Yet, the uncertainty would go far beyond the United States and its new president's policies.

Later this year, elections will be held in key EU countries such as Germany and France, and the outcome may influence the future of the European integration, and of Italy as well, he said.

Last but not least, a general vote might also be called here, and there was "a non-negligible risk that Italy will end up without a viable political majority in parliament," according to the analyst.

"If this were going to happen, it would of course be very bad for growth, because investments fear uncertainty," Tabellini said.

Nonetheless, the latest data were moderately encouraging overall. "Macroeconomic policies initiated by the Italian government and supportive monetary policy have contributed to the turnaround, along with lower commodity prices," the OECD stated in its survey.

The scholar also noted some fundamentals have improved. "Indications from the industrial production orders are good, (which means) the recovery is continuing," Tabellini said.

An increase in private consumption was also registered since 2016, and that was another good sign, given that a feeble domestic demand overall has been one major factor hampering growth so far.

"It reflects a general improvement in the disposable income of households, thanks to various factors including an increase in employment and a more relaxed fiscal policy," he said.

The economist pointed out there was an expansion of about 0.7 percent of gross domestic product (GDP) in the budget deficit -- net of interest payments and adjusted for the cycle -- in 2016, and another one of the same range would be expected in 2017, "if the government's program goes as planned."

"So, the fiscal policy has become more expansionary thanks to the room created by lower interest rates," Tabellini said. "That has benefited households spending, which had been very compressed because of the long recession and stagnation."

Yet, Italy's path remains that of "a slow growth, not a rapid one," the analyst pointed out, and some long-lasting domestic issues should be addressed in order to boost it.

"In the perspective of growth, Italy's weakest points are two: banks and public debt." Tabellini noted the Italian banking system was growing in double-digits in 2006-2007, before the crisis. But it was now burdened with millions of euros of bad loans, and the bank credit resulted almost flat in 2016.

"It is difficult to imagine Italy will be able to accelerate its growth by much, without allowing bank credit to grow. This is not an issue of financial stability, but of ability of banks to sustain recovery," the economist stressed.

The second big issue was the debt, which "will become a source of instability and financial tension when the European Central Bank stops the quantitative easing, which is going to happen sometimes in 2018," he said. Enditem