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OECD sees deeper recession in Italy, rising unemployment

Debt to rise despite drop in deficit

OECD sees deeper recession in Italy, rising unemployment

Rome, May 29 - The Organisation for Economic Co-operation and Development (OECD) said Wednesday that it expected the recession to be deeper than it previously feared this year and that unemployment is set to keep rising. The OECD said it had revised down its gross domestic product forecasts for Italy, which is enduring its longest recession in over 20 years after registering seven consecutive quarters of negative growth, just a month after its last report on the Italian economy. The organisation predicted negative growth of 1.8% for Italy this year, compared to 1.5% in its previous prediction. It said GDP should rise 0.4% in 2014, compared to 0.5% in the previous forecast. The OECD expects unemployment in Italy to rise from 10.6% in 2012 to 11.9% this year and 12.5% next year. It recommended that Italy "consolidate reforms that are positive for growth" after former premier Mario Monti's technocrat government introduced a series of structural economic reforms while it was in office from late 2011 to early this year. It also said Premier Enrico Letta's left-right government should "avoid premature tax reductions" after Monti's emergency administration increased them as part of austerity measures to put Italy's public finances in order after the country looked in danger of suffering a Greek-style meltdown in 2011. The outlook said that "despite weak growth and poor prosects for 2013, Italy's deficit will continue to decrease", forecasting a GDP-deficit ratio of 3% this year and 2.3% next. Nevertheless, Italy's huge public debt will keep rising, the OECD predicted, going from 127% of GDP in 2012 to 131.7% in 2013 and 134.3% in 2014. Italy's Labour Minister Enrico Giovannini said he was not surprised about the OECD's unemployment forecasts, pointing out that the government's economic blueprint said there will be a time delay between the end of the recession and a decrease in the number of jobless. He said that Letta's government would present a plan in June or July that aims to "accelerate the link between economic recovery and an increase in jobs". He also stressed that Letta successfully pressed for June's summit of European leaders to focus on fighting unemployment, which is particularly bad among young Italians, with almost 4 out of 10 15-to-24-year-olds out of work. "We have to break the vicious circle that has been created in the economy, with families not consuming and companies not investing," said Giovannini. "That's why we will present, in connection with the decisions taken by the European Council, a decree on youth unemployment that seeks to respond to these problems". The OECD also sounded the alarm over the credit crunch Italian firms are facing, which makes emerging from the recession even more difficult. "Credit remains expensive and hard to obtain for many companies (in Italy) because...the banks are weakened by growing levels of non-performing loans," the outlook read. Italy's biggest trade union, the leftwing CGIL, said the report showed that Italy risked going from recession to "depression" and called for changes in fiscal and labour policies.

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