Since late 2011, Italy has been enacting a broad package of structural reforms and fiscal consolidation policies, together aimed at addressing a legacy of weak growth and high public debt. This strategy has been rewarded by higher confidence in financial markets and improved medium-term prospects. In the short term, however, though necessary to avoid even worse outcomes, it has been accompanied by significant output losses and social costs – unemployment has been rising and vulnerability to poverty has increased. Success in turning the economy round depends importantly on euro-area crisis resolution. In this regard, Italy has benefited from actions at the euro area level, including the European Central Bank’s readiness to provide support if needed. Success ultimately depends on full implementation of structural reform legislation and commitment to debt reduction policies, which will hasten the return to healthy growth.