Yearender: Italy faces uncertain recovery in absence of structural reforms

ROME, Dec. 22 (Xinhua) -- Italy's economy in 2009 has not been heavily damaged by the global downturn but still faces uncertain recovery in the absence of structural reforms.

The limited international exposure of the country's financial system has avoided a direct impact from the global crisis. Moreover, there were no bank defaults, and the center-right government of Prime Minister Silvio Berlusconi avoided giving in to bail-outs or stimulus packages.

According to Pierpaolo Benigno, economics professor at the Rome-based LUISS Guido Carli University, Italy's economy primarily suffered from a fall in exports and business investments.

In December, Economy Minister Giulio Tremonti said the crisis had "eaten away" 6 percentage points of gross domestic product (GDP) amounting to 90 billion euros (128.4 billion U.S. dollars), 70 billion euros (99.8 billion dollars) of which were linked to a sharp fall in exports.

But despite a tough start to the year, in the third quarter the Italian economy grew 0.6 percent. The country is now on the way to recovery, and growth forecasts for 2010 and 2011 are positive.

However, the economic revival is slow, with great uncertainty about its strength and timing and other pre-existing factors hindering it.

PRE-EXISTING OBSTACLES

Prior to the outbreak of the global crisis, Italy was already suffering from long-term slow economic growth and other structural problems such as the lack of important socioeconomic reforms.

The structure of Italy's industrial system is very fragile. Almost 90 percent of firms are small and medium enterprises which are hindered by their limited dimensions from entering and dominating international markets and have suffered drops in global demand.

In addition, there is a broadening economic and social gap between the rich north, where most businesses are concentrated, and the less well-off south of the country.

Recovery has been made more difficult as well by Italy's high public debt, which according to governmental data is set to reach 115.1 percent of GDP this year and 117.3 percent in 2010.

UNCERTAIN RECOVERY

In June, a report from the Organization for Economic Cooperation and Development (OECD) said Italy's GDP had contracted5.9 percent, but the country was starting to leave the recession behind.

The Paris-based institute said in September that Italy was already showing the strongest signs of recovery in the 30-nation group, leading most European countries in the economic revival.

The government's economic outlook for 2010 is quite positive. In November, Tremonti predicted Italy's GDP would grow by 1 percent or more next year, thanks to a rise in internal consumption levels and consumer confidence.

But Tremonti's forecasts could be far too optimistic. "We were growing by 1 percent when the world economy was well functioning, but now growth rates will be lower everywhere," said Benigno.

The recovery may not be gradual in coming years. The OECD predicted a 1.5 percent rise in GDP below the European Union (EU)average level for 2011.

The Italian government has taken various measures during the year to tackle the downturn, such as cutting public spending, lowering taxes on profits and labor, helping businesses invest in research and innovation, extending unemployment benefits and introducing a tax amnesty for capital return which has led to almost 5 billion euros (7.1 billion dollars) of extra revenues.

In October, Italy's top banker and Chairman of the Financial Stability Board Mario Draghi announced the country was finally emerging from the worst recession since World War II.

Productivity levels have risen, but unemployment still remains one of those long-standing negative indicators.

According to the National Institute of Statistics (Istat), in December the jobless rate increased to more than 8 percent, with more than 2 million unemployed people in the country.

For the International Monetary Fund, unemployment is set to further increase in 2010 to almost 10.5 percent.