Italy faces fragile recovery, says central bank governor

ROME, May 31 (Xinhua): Italy's recovery from its longest post-war recession is fragile and economic growth can only be pursued in tandem with budgetary balance, governor of the country's central bank Ignazio Visco said here on Friday.
Recession in Italy came to a halt at the end of last year, mainly thanks to foreign demand and to the reduced need for fiscal adjustment, Visco said speaking at the bank's annual meeting in Rome.
"However, a real recovery is struggling to get under way. The gradual improvement in expectations has been slow to translate into a solid upturn in economic activity," he added.
In the last quarter of 2013, while exports were almost back to the same level as at the end of 2007, household consumption was still down by about 8 per cent and investment by 26 per cent, with a capacity loss in manufacturing of approximately 15 per cent, he said. Industrial production has shrunk by 25 per cent overall.
"The recession has especially had a heavy impact on the number of persons in employment and hence on household income," the governor pointed out. Between 2007 and 2013, employment fell by more than a million, with almost all of the contraction in industry. The unemployment rate has more than doubled compared with the low point of 2007, reaching 12.7 per cent in March, he noted.
Household spending can benefit from the tax cuts of 80 euros (US$109) per month recently approved by the government of Prime Minister Matteo Renzi, but "it will not become the driving force of the recovery without an enduring increase in employment," Visco said.
"The lowering of the ratio of debt to gross domestic product (GDP) - which is currently at around 133 per cent - remains the ineluctable challenge for our country," Visco stressed. "Economic growth and budgetary balance can only be pursued in tandem," he added.
Yet important progress has been made in adjusting the country's public finances, Visco noted. The deficit is equal to 3 per cent of GDP, below the European average. With Germany, Italy has the highest primary surplus in Europe and is close to achieving structural budget balance.
Credit supply restrictions are hardest on small and medium-sized companies (SMEs), whose indebtedness and dependence on bank loan are signs of their vulnerability. In the coming weeks the central bank will adopt measures to help banks to allocate lines of credits, create more flexible collateral management programmes and other moves to facilitate lending to firms, Visco announced.
Among the most urgent interventions there are also those to safeguard legality and efficiency in the public administration and fight corruption, criminal activity and tax evasion, he also added.