ROME, Feb. 2 (Xinhua) -- Italy needs more structural reforms to counterbalance the negative effects of domestic risks and a global cyclical slowdown, the Bank of Italy governor Ignazio Visco said on Saturday.
Visco warned of "stagnation" and "a drop of production activity" at the congress of the Italian financial markets association Assiom Forex here.
He recalled that since 1999, Italy's annual growth rate has been on average 1 percentage point below that of the euro currency area to which it belongs, as the third largest economy.
"To reap in full the benefits of the expansionary conditions fostered by monetary policy requires the contribution of reforms to reduce the structural weaknesses of our economy, which magnify cyclical difficulties," Visco said.
"Decisive progress must be made in promoting a more business- and innovation-friendly environment, encouraging labor market participation, raising the quality of human capital, and improving the efficiency of our public services," he said.
The governor's remarks came after the National Institute of Statistics (ISTAT) said the country entered a technical economic recession in the last part of 2018.
According to ISTAT data, the Italian gross domestic product (GDP) shrank by 0.2 percent in the fourth quarter of 2018, following a 0.1 percent contraction in the third quarter.
Two consecutive quarters of negative growth define a recession, in technical terms.
Despite the latest figures -- which came quite as expected, following drops registered in industrial production and exports -- Prime Minister Giuseppe Conte on Friday said he was confident the economy would be able to benefit from the government's latest policies, and recover in the second half of 2019.
Yet the central bank governor sounded the alarm over the country's capacity to face domestic and global risk factors -- and meet this year's 1-percent growth projection -- if further reforms in some sectors were not implemented.
"The prospects for the Italian economy are less favorable today than a year ago," Visco said.
Downside risks mainly reflected Italy's own weaknesses, and especially the uncertainty surrounding "growth, fiscal policy stance, and the resumption of a credible path to reduce the burden of public debt," he said.
However, the governor said a downward spiral in the country's economy and financial system could be avoided "by keeping a close watch on public accounts in the short and long term, and through the decisive implementation of cohesive reforms to preserve the trust of savers and regain that of investors."
"The ultimate goal, requiring perseverance and determination, has to be that of a lasting return to a path of social and economic development," Visco said.