Italy's fragile economic growth has not been enough to boost real employment and has led to anger and populist sentiment, Italy's former Economic Development Minister, Corrado Passera, told CNBC.
"Given that the recession has been so long, and given that the growth is not strong enough to create real employment, the social malaise is so wide that … certainly a very large part of the society is afraid of the future, is angry, is against the people that have managed the country in the last decades," Passera, who was an independent minister under the Mario Monti government, said Thursday.
Italy is edging closer to its crucial election vote Sunday. Although the southern European country has been growing above 1 percent in the past few years, unemployment levels are still over 11 percent and an inflow of immigrants has deepened social tensions.
"The social malaise that has been accumulated in this country, like in most other countries, is fostering populistic — kind of — political approaches in parties," Passera said. He added that it was a "good piece of news" that the Italian economy has been growing but the rate is not enough to generate enough employment. "That's the priority number one for the new government, no matter who wins the elections," he said.
Meanwhile, UBS estimates the Italian economy grew 1.5 percent in 2017, supported by domestic demand and trade. It also predicts that its fiscal position has improved, in terms of both deficit and debt. Analysts at the bank, in a research note Tuesday, also said that growth was mostly due to cyclical reasons, but added that it has further room to run if Italian companies invest more. However, it warned that a "prolonged phase of political uncertainty could harm the recovery and undermine entrepreneurs' animal spirits."
The latest election polls from a few weeks ago suggest there will be no clear winner on Sunday. Analysts expect a hung parliament and weeks, potentially months, of negotiations to form a government.
Speaking to CNBC on Friday, Deborah Bergamini, party spokesperson for Forza Italia, said it would be very difficult for her party to join forces with the center-left.
"I see it as really, really, really impossible," she said. "We did try this experiment back in 2013 and it was a big failure."
After weeks of political deadlock following a general election in 2013, the party of Silvio Berlusconi — at the time called The People of Freedom — supported Enrico Letta from Partido Democratico. That government lasted only for a year.
UniCredit analysts believe that the "election outcome remains surrounded by a degree of uncertainty."
"Between the election date and the formation of a broad coalition, headline risk will dominate, likely causing BTP (multi-year Italian sovereign bonds) volatility," the analysts said in a note. Italian bonds have proved resilient in the last couple of months, supported by stronger euro zone growth as well as less Euroskeptic sentiment in the country.
Last week, their gap against German bunds widened to the most since January on concerns over the election outcome, but tightened again this week suggesting some confidence among investors.