The Italian economy has not proved resilient to the global slowdown that started in 2001. The ambitious programme of structural reforms over the past decade allowed Italy to join the EMU and to improve macroeconomic fundamentals, but has not been enough to spare the country from a disappointing performance in 2002, when the deceleration of growth was one of the sharpest among OECD countries. Discretionary fiscal support and low real interest rates temporarily revived both consumer and business spending in the second half of last year; however, it is unlikely that activity will pick up in Italy in advance of that of its trading partners, with Italian GDP rising this year broadly in line with the Euro-area average. A bright spot in the current downturn has been a strong employment performance, a clear result of the greater flexibility of the labour market following the reforms of the 1990s...