Italy: Selected Issues

This Selected Issues paper explores potential growth in Italy as it adjusts to a rapidly aging population, which is expected to significantly dampen economic expansion. In order to counteract this impact, the paper proposes several policy actions, such as increasing female labor force participation, enhancing workforce skills, and boosting total factor productivity. Implementing a comprehensive package of reforms is crucial for enhancing overall productivity and growth. While the analysis acknowledges that other factors could influence growth over time, the clear downward trend underscores the urgency of these policy interventions. An aging population with a low natural replacement rate will shrink the labor force and compress potential growth. Policies already in place, like the indexing of the retirement age to longevity, can support labor force participation, but fully mitigating the demographic drag remains challenging. The National Recovery and Resilience Plan includes vital investments and reforms to boost productivity and growth. The analysis demonstrates that boosting female labor force participation, improving skill levels, and directing investment toward innovative sectors can significantly mitigate the negative effects of aging. Coordinated policy actions at both European and national levels are essential to achieve a lasting impact.