Italy’s economy is emerging slowly from a hurting recession while the ECB’s quantitative easing and recent reform efforts pushed market confidence indicators to a rebound. The EPI grades Italy’s current economic performance at a C level, with the EPI score projected to be 86.7% in 2016.

Unemployment of 11.9% remains a concern and has been declining only very gradually in the past few years.  Incomplete implementation of previous reforms, together with depressed demand and weakened balance sheets, have been dragging down growth. Real activity and investment are still far from their pre‐crisis levels, and medium‐term growth prospects remain lackluster. After almost four years of stagnation, GDP growth is projected to rise to 1% in 2016, supported by a highly accommodative external environment, in particular sharply lower oil prices, a depreciated euro, and interest rates at historic lows. The initial rebound has been driven by household consumption and exports are set to pick up as well, however, investment has not yet responded and unemployment remains stubbornly high above 10%.

The budget deficit is projected to be below 3% in 2016 and has been on a declining path in the past few years but the protracted recession has contributed to a steady rise in the debt‐to‐GDP ratio. This has limited the room for fiscal policy to cushion the effects of the downturn.

The 5-Minute Economist projects Italy’s EPI score to improve only gradually in the medium term from almost 87%, or an C level, currently to 89%, or a C+ level, by 2020, driven by some GDP growth acceleration and a lower unemployment rate, despite a gradual pick-up in inflation.