IMF urges labour reform as it cuts Italy growth forecast

MILAN, Sept 19 (AFP):  Italy's government must overhaul its labour market to kick-start its economy, which is set to shrink for the third year running in 2014, the International Monetary Fund said on Thursday.

Gross domestic product is expected to contract 0.1 per cent, the Washington-based fund said in a report, cutting its previous forecast that Italy's economy would expand by 0.3 per cent.

Unemployment is set to average a record 12.6 per cent, the IMF predicted, urging Rome of the need to push through planned changes to how employment contracts are structured.

"Prime Minister Renzi has outlined a bold reform agenda. Firm implementation is now essential to create jobs, increase productivity and lift potential growth," the IMF said in a statement.

Italy's premier Matteo Renzi has made overhauling labour rules a cornerstone of his efforts to revive the country's ailing economy, one of the most sluggish and indebted in the eurozone.

But his ability to turn around the bloc's third-largest economy, which fell back into recession in the second quarter, has been thrown into doubt as he has struggled to push reforms through parliament.

Finance Minister Pier Carlo Padoan this week was forced to admit that "it is possible" Italy's economy may shrink again this year after three years of painful contraction.