ROME - According to fresh OECD forecasts, Italy’s GDP growth is expected to rise to 1.4% in 2016 and 2017. The labour market is improving, helping to drive private consumption higher. However, bank credit remains constrained due to the large and still rising amount of non-performing loans, hampering investment growth. Sluggish export market growth is hindering exports. Large, although declining, economic slack will contain consumer price and wage inflation.

  The government budget deficit will continue to decline gradually, as the economic recovery raises tax revenue and interest payments on the public debt decline. Extending the cuts in social security contributions is a priority to consolidate the recovery of the labour market. Further measures to address banks' holdings of non-performing loans would strengthen the recovery. Permanently shifting the tax burden from labour to consumption and real estate, and raising environmental taxes would strengthen the foundations of stronger, greener and more inclusive growth.

  In recent years, the depressed economy resulted in a decline in carbon emissions. As the recovery strengthens, containing the growth in emissions will depend on simplifying energy efficiency incentives and selecting those entailing the lowest abatement costs. Price-based mechanisms, such as pollution and congestion charges, could be used more extensively, and vehicle taxation should be restructured to reflect CO2 emissions and other environmental externalities.