Reforms adopted by Italy have placed it on track to balance its budget in 2014 but the country's economy is in recession and this, along with the risk of contagion from the eurozone debt crisis, may force Rome to take further steps to curb spending, according to the Organization for Economic Cooperation and Development (OECD).
In its latest economic outlook, released here on Tuesday, the OECD said: ''since the end of 2011 Italy has made important structural reforms, embarking on a path towards balancing public finances... these reforms must continue.
''The reduction of spending and the increase in taxes should reduce the deficit to a very low level in 2013 and fully eliminate it in 2014,'' the report added.
The OECD went on to point out that the Italian economy ''is once again in recession, under pressure from weakened European economies and this could have short-term consequences on budget rigors. Economic activity will probably continue to retreat next year but should pick up at the end of 2013''.
Because of the recession, the OECD said Italy may need to ''adopt additional budget measures'' to keep it on track.
Italian Premier Mario Monti has said Italy will be close to hitting its target of balancing the budget in 2013 without any addition measures on top of the austerity package of tax hikes and spending cuts approved in December.
The OECD outlook predicted that Italy's GDP will fall by 1.7% this year and 0.4% in 2013. This contrasted with a forecast earlier this month from the European Union that said GDP would slip by 1.4% in 2012 and rise by 0.4% next year.
According to the OECD, the main risk Italy faces ''despite the clear intention of the government to balance the budget'' is the ''contagion from weakness in the euro area that could boost interest rates on its public debt''.
The report went on to stress that the reforms Italy has adopted to date have ''already improved long-term prospects and must continue'' and a ''reduction in salaries, to bring them greater in line with productivity, could have a stimulating effect on competitiveness and hold in check the rise in unemployment''.
Looking at the eurozone, the OECD said ''the crisis in the eurozone has recently become more serious and it remains an important source of risk for the global economy''.
GDP in the euro area is expected to dip by 0.1% this year and then rise by 0.9% in 2013, the OECD said, adding that the decline in 2012 would be the result of growth being unchanged in the first quarter to then decline by 0.3% in the second quarter before it rises respectively by 0.3% and 0.7% in the third and fourth quarters.
The OECD predicted that GDP would climb progressively in 2013 with respective quarterly increases of 0.9%, 1.2%, 1.5% and 1.7%.
In its overview of the world economy, the OECD said that ''the global economy is once again seeking to return to growth... but this is taking place at different paces, with the economies of United States and Japan expanding quicker than that of the euro area''.