The Italian economy has performed poorly in recent decades and the recession has further exacerbated the situation. The gap in Italy�s per capita GDP growth rate compared with the EU average has never been wider. Domestic demand is in decline and private investment low. Atypical employment is widespread among those on the margins of the labour market. Productivity is low, but the cost of labour remains high. The very core of the Italian manufacturing system � small-sized high-quality manufacturing � is being challenged by low-cost producers and emerging markets. Giancarlo Dente analyses the policy responses from the Italian government designed to tackle the slowdown and presents recommendations for future policy action to foster sustainable economic growth.