Italy only G7 nation in recession, says OECD

Calls for flexibility in EU budget rules to boost growth

(ANSA) - Rome, September 15 - Italy will be the member of the Group of Seven major industrialized nations in recession this year, with shrinking of 0.4%, and faring only a little better in 2015, the Organization for Economic Cooperation and Development (OECD) said Monday.

The Paris-based research agency also chided the other two largest eurozone nations - Germany and France - for their "disappointing" economic results and urged the European Union to apply more "flexibility" in its budget rules to encourage greater economic expansion. A loss of 0.4% this year in Italy will be followed by growth of just 0.1% in 2015 - well below the OECD's earlier forecasts of a 0.5% expansion this year and 1.1% next year, the agency said in a report on its outlook for the global economy. Gross domestic product (GDP) across the eurozone is now expected to expand by just 0.8% this year, down from the OECD's spring forecast of 1.2% growth, said the report. "Continued slow growth in the euro area is the most worrying feature of the projections," said the agency, forecasting an expansion this year of 1.5% for Germany and just 0.4% for France.

In 2015, Germany will again grow by 1.5% while France will edge up to 1.0% for a eurozone average of only 1.1%, said the OECD. In contrast, the massive United States economy will expand next year by 3.1% after it posts 2.1% growth in 2014, said the OECD. The Italian economy, the third-largest in the eurozone, returned to recession in the second quarter of this year, its third downturn since 2008.

The government of Premier Matteo Renzi has been announcing a range of reforms, most designed at cutting red tape and improving the investment climate of Italy in the hopes of pulling the country out of the current downturn. But a steady stream of negative economic data have been discouraging for many in Italy. A severe blow fell last Friday with reports from national statistical agency Istat that Italy slipped into deflation in August for the first time since 1959. With extremely low inflation in much of Europe, reflecting the widespread economic weakness, the European Central Bank has announced a series of measures aimed to injecting more funding into the eurozone area to try to boost growth and raise inflation closer to the bank's target of about 2%.

ECB President Mario Draghi said last week that to enjoy the full benefits of monetary policy measures, it would be essential that governments match ECB action with significant structural reforms. Draghi also suggested that flexibility existing in European Union budget rules be fully applied to ensure adequate investments are made to boost growth, repeating a message that Renzi has frequently sent and which was reiterated by the OECD in Monday's report.

Italy and other European countries have called on the EU to exclude certain major spending programs, such as infrastructure investments, from calculating a nation's ratio of deficit-to-GDP. In a separate report Monday, ratings agency Standard and Poors said that although the eurozone economy is fragile, the ECB actions will be helpful in encouraging expansion. “Economic conditions in the eurozone remain fragile, but some positive signals are emerging," said S&P. Still, it forecast zero growth in the Italian economy this year, down from a June forecast of 0.5% expansion.