The Italian government must press ahead with a major revamp of its labour and welfare laws to lift the economy out of its low-growth doldrums, the OECD has said following a period of renewed political uncertainty in the eurozone’s third largest economy.

In its latest annual report on the Italy, the Paris-based Organisation for Economic Co-operation and Development laid bare the stark performance of the Italian economy since the financial crisis.

Italian GDP per capita has shrunk by 10 per cent since the financial crisis, taking the country back to pre-eurozone levels last seen in 1997. Absolute poverty in Italy has “nearly doubled from its pre-crisis levels”, said the OECD.

The country has been hit by a fresh bout of political and banking worries in the last three months, after a failed constitutional referendum forced the resignation of its reform-drive prime minister Matteo Renzi late last year.

Rome will also embark on the state rescue of its oldest bank, Monte dei Paschi di Siena, and is planning to pump €5bn into two other regional lenders in a bid to finally rid its financial system of a historical bad loans problem.

Despite the political uncertainty, the OECD urged Rome’s caretaker government and the country’s finance minister Pier Carlo Padoan – a former chief economist at the think-tank – to redouble its plans to restructure the banking system, lower its tax burden, and raise educational standards.

“Structural reform process must continue if Italy is to build a more inclusive society and improve growth prospects” said a 70-page report from the OECD.

The OECD expects growth to inch up to 1 per cent this year and next from 0.9 per cent in 2016. Latest data shows the Italian economy unperformed expectations at the end of last year, but the annual GDP reading was still the best since 2010.

The report also warned the country was suffering from “chronically low productivity growth” which has pushed down on living standards and kept a lid on higher growth.

Unlike in previous periods of economic slowdown, the OECD also noted that the country’s export performance has also lagged behind its rivals in Spain and Germany since 2008.

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