Italy: Economic and Political Overview
Italy has a diversified economy, ranking as the third-largest in the Eurozone by GDP. In 2025, GDP grew by 0.5%, with private consumption up 1.1% and construction expanding by 2.4% while manufacturing edged down by 0.3%. The tax burden reached 43.1% of GDP, the highest since 2014. By 2027, RRF-related spending and improved financing conditions are anticipated to boost investment, alongside continued growth in consumption. GDP growth is forecast to reach 0.5% in 2026 and 0.6% in 2027 (data EU Commission).
The country’s primary budget (which excludes interest payments) is structurally positive; however, the interest cost on the government’s debt weighs heavily on Italy’s accounts, with the general government budget being constantly in deficit. In 2025, Italy's general government deficit declined to 3.1% of GDP from 3.4% in 2024. This significant drop was driven by the phase-out of energy price mitigation measures (1% of GDP) and tax credits for housing renovations (around 3.5% of GDP). Despite weak nominal GDP growth, strong tax revenue, particularly from personal income tax and withholding taxes on financial assets, contributed to the reduction. These factors were only partially offset by labour tax cuts, pension indexation to high 2023 inflation, and public sector wage increases linked to contract renewals for 2022-24. The primary balance improved further to a positive 0.8% of GDP, even as debt servicing costs kept interest expenditure high. In 2026, the deficit is projected to decline further to 2.9% of GDP, driven by moderate primary expenditure and stable interest costs. Despite having one of the highest debt-to-GDP ratios globally, Italy has managed to reduce its debt by nearly 20 pp of GDP from its 2020 peak, returning to pre-pandemic levels—a target achieved by a few Eurozone countries. After rising to 137.1% of GDP in 2025, the debt-to-GDP ratio is projected to rise further during 2026-27, reaching 139.2% by the end of the period (data EU Commission). This increase is driven by stock-flow adjustments stemming from the lagged cash impact of tax credits for past housing renovation deficits, compounded by a less favourable interest-growth-rate differential despite positive and rising primary balances. Headline inflation rose to 1.5% in 2025, up from 1% in 2024, with core inflation at 1.9% (official governmental data). A sharp rise in energy prices from March 2026 is expected to lift HICP temporarily, on top of services, where wage pressures will likely persist. Headline inflation is forecast at 3.2% in 2026 and 1.8% in 2027 (EU Commission).
In 2025, employment grew by 1.3%, down from 1.6% in 2024, with further deceleration expected in 2026-27. Rising labour market participation is projected to outpace the decline in the working-age population, pushing the unemployment rate down to 5.7% by 2027 from 6.1% in 2025. Nominal wage growth is expected to moderate to below 3%, as labour demand softens and wage contracts are only partially indexed to past price increases. Italy has high levels of youth unemployment (19% as of Nov. 2023, according to ISTAT), and regional inequalities between the highly industrialised and dynamic North and the poorer, rural southern “Mezzogiorno” areas are still evident. Furthermore, Italy has to face a falling birth rate and a declining population. Italy’s GDP per capita (PPP) was estimated at USD 62,603 by the IMF in 2024, just below the EU-27 average (USD 64,680).
| Main Indicators | 2025 | 2026 (E) | 2027 (E) | 2028 (E) | 2029 (E) |
| GDP (billions USD) | 2,550.11 | 2,738.16 | 2,805.92 | 2,887.38 | 2,965.31 |
| GDP (Constant Prices, Annual % Change) | 0.5 | 0.5 | 0.5 | 0.8 | 0.7 |
| GDP per Capita (USD) | 43,270 | 46,505 | 47,715 | 49,175 | 50,593 |
| General Government Balance (in % of GDP) | -3.1 | -2.8 | -2.6 | -2.4 | -2.5 |
| General Government Gross Debt (in % of GDP) | 137.1 | 138.4 | 138.8 | 137.6 | 137.1 |
| Inflation Rate (%) | 1.6 | 2.6 | 2.4 | 2.3 | 2.0 |
| Unemployment Rate (% of the Labour Force) | 6.1 | 6.0 | 6.1 | 6.0 | 6.0 |
| Current Account (billions USD) | 30.91 | 16.92 | 31.81 | 42.14 | 54.16 |
| Current Account (in % of GDP) | 1.2 | 0.6 | 1.1 | 1.5 | 1.8 |
Source: IMF – World Economic Outlook Database, Latest data available
Italy is one of the main agricultural players in the EU, being the biggest European producer of rice, fruits, vegetables and wine. The agricultural sector represents 1.9% of Italian GDP, while the agri-food system in general is estimated to account for 15% of GDP (data EU Commission). The primary sector employs 4% of the workforce (World Bank, latest data available), and is comprised of around 1.1 million farms of which almost half have a small agricultural output (European Commission). The country’s main crops include cereals (particularly wheat), corn, barley, rice and oats. Italy is also the first world producer of wine and the first producer of tobacco in Europe. According to figures by ISTAT, in 2025, agricultural production increased by 0.3% in volume while value added was essentially stable (-0.1%). Agricultural employment fell (-0.5%), as did agricultural service activities (-0.9%). Secondary activities maintained a positive trend (+1.3%). It was a favorable year for olive oil (+9.6%), cereals (+4.1%), and wine (+2.9%), but fruit (-7.3%), industrial crops (-1.9%), and forage (-1.3%) experienced declines.
Italy is a primary industrial country, with the secondary sector accounting for 22.9% of GDP and employing 27% of the active population (World Bank, latest data available). The country’s industrial activity is concentrated in the northern part of the country, including cities such as Turin, Milan and Venice. Much of the Italian industry is comprised of small and medium-sized family businesses, with the majority of Italian industrial companies having less than 50 employees. Italy is the largest global exporter of luxury goods (clothing, cars, etc.); other major Italian industries include precision machinery, motor vehicles, chemical products, pharmaceuticals, electrical items, fashion and clothing. The manufacturing sector alone accounts for 15% of GDP (World Bank). The country has suffered from deindustrialisation (especially during the global financial crisis), but it remains Europe's second-largest manufacturing power and the eight-largest worldwide. According to data by ISTAT, in 2025 Italian industrial production declined by 0.2% compared to one year earlier, a third consecutive year in the red. The fall was far shallower than the drops recorded in 2023 and 2024. The fourth quarter marked a turn, with an increase of 0.9% quarter-on-quarter.
The service sector constitutes almost two-thirds of Italian GDP (65%) and employs 70% of the country’s workforce. Tourism - one of the fastest growing and most profitable industries - comprises the largest part of the service sector (Italy is the fifth most visited country internationally and the third most visited in Europe): according to the national statistical agency ISTAT, tourism and its related activities generate around 6% of the economy’s added value. Business-related services also play an important role in the country’s economy. It is estimated that more than half of Italy’s 5 million companies are active in the tertiary sector. According to Istat, in 2024, retail sales showed a 0.7% increase in value, while sales volume declined by 0.4% compared to 2023.
| Breakdown of Economic Activity By Sector | Agriculture | Industry | Services |
| Employment By Sector (in % of Total Employment) | 3.3 | 26.4 | 70.2 |
| Value Added (in % of GDP) | 2.1 | 22.6 | 64.5 |
| Value Added (Annual % Change) | -0.1 | 0.8 | 0.3 |
Source: World Bank, Latest Available Data. Because of rounding, the sum of the percentages may be smaller/greater than 100%.
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The business rankings model measures the quality or attractiveness of the business environment in a series of countries. It examines separate criteria or categories, covering the political environment, the macroeconomic environment, market opportunities, policy towards free enterprise and competition, policy towards foreign investment, foreign trade and exchange controls, taxes, financing, the labour market and infrastructure.
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