Italy labour market at work, but monitoring needed

The unemployment rate in Italy, including those aged 15 to 24, declined considerably, while the employment rate accelerated, suggesting the labour market recovery may have picked up momentum. The total unemployment rate declined to 12.0% in July, 0.5pp below June (youth unemployment fell 2.6pp to 40.5%), while the employment rate rose for the second consecutive month by 0.1% m/m to 56.3%. Both indictors are still well below pre-crisis level, but their trends seem to suggest that the worst phase of the adjustment may be over, notes Barclays.    

A soft economic recovery combined with strong supply side reform would have helped the labour market improve on two critical counts, albeit at a different pace, says Barclays.

The Jobs Act reform and fiscal incentives to hire under "single" contracts to increase the number of open-ended contract activations. Indeed, the share of permanent contracts as a percentage of the total increased by more than 5pp per month (March-July average) compared to the same period a year earlier, reaching 21% in July.

"As such, before substantially changing our view that the unemployment rate will continue to decline, albeit at a slower pace than the July data seem to suggest. The unemployment rate is likely to decline to 11.9% this year from 12.7%, and it is worth to note whether the recent decline in the participation rate has momentum", says Barclays.