OECD downbeat on Italy

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OECD downbeat on Italy

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The Organisation for Economic Cooperation and Development has just delivered yet more bad news for Italy’s new prime minister.

It is now forecasting that the eurozone’s third largest economy will contract by more than expected this year.

Underlining the tough challenges Enrico Letta faces, the OECD said GDP is set to shrink by 1.5 percent this year. Last November its forecast was for 1.0 percent contraction. It sees anemic growth of just 0.5 percent in 2014.

Italy’s public debt is predicted to rise to shockingly high levels – a record 134.2 percent of gross domestic product next year – despite recent major austerity measures.

Italy has the eurozone’s second-largest debt after Greece as a percentage of GDP. When former Prime Minister Mario Monti took office in 2011, the debt stood at 120.8 percent of GDP.

The OECD is urging Rome to slash that with spending cuts, in contrast to calls from within Letta’s left-right coalition for lower tax and more spending to stimulate the economy.

All the OECD’s main economic and public finance forecasts were more negative than the official targets that Letta has inherited from Monti.

Its report said: “Fiscal consolidation, declining investment and the rebuilding of household savings, along with tight credit conditions, are likely to hold back growth in coming months.”