Italy: Economic and Political Overview
For the latest updates on the key economic responses from governments to address the economic impact of the COVID-19 pandemic, please consult the IMF's policy tracking platform Policy Responses to COVID-19.
Italy's economy was heavily impacted by the global financial crisis and only emerged from recession in 2015; however, the country was one of the most affected by the COVID-19-induced crisis. After rebounding by 6.6% in 2021, the economy grew an estimated 3.2% in 2022 (IMF) thanks to solid growth in the first three quarters of the year, exceeding pre-COVID-19 levels in the second quarter of the year. Nevertheless, high energy prices impacted production in energy-intensive industries already in the last quarter of 2022, while falling real incomes due to high inflation, increasing interest rates and subdued export market growth contributed to a slowdown in the economy. Such conditions are expected to continue into 2023, as the Italian economy is forecast to enter a period of contraction, with a tangible recovery not to be expected before the second half of 2023. Overall, the IMF projects a negative growth of 0.2% this year and a rebound to 1.3% in 2024 when private consumption is set to pick up again.
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 structurally in deficit. The 2022 budget included deficit-increasing measures, consisting of a further reduction of the tax wedge on labour and several fiscal packages to mitigate the economic and social impact of high energy prices (valued at 2.6% of GDP by the EU Commission). Overall, the budget deficit was estimated at 5.7% in 2022, whereas in 2023 and 2024 the general government deficit is forecast to decrease to 3.6% of GDP (IMF). Italy has one of the highest debt-to-GDP ratios in the world, estimated at 147.2% in 2022 when interest expenditure increased to 4% of GDP (from 3.6% one year earlier), due to higher bond yields. The IMF expects public debt to remain stable this year (147.1% of GDP) before decreasing slightly in 2024 (146.1%). Being a net importer of energy, Italy’s inflation was pushed by rising global energy costs, reaching a record level of 8.7% in 2022. Consumer price inflation is expected to come down only gradually as energy price caps are phased out in 2023 and recent increases in energy and food prices are triggering wider price pressures. For 2023, the IMF forecasts the inflation rate at 5.2%, before falling further to 1.7% in 2024.
The unemployment rate, which has been on the rise since the global financial crisis, started dropping in recent years; however, it spiked in the aftermath of the global pandemic crisis. Overall, it decreased to 8.8% in 2022 (from 9.5% one year earlier - IMF). More recently, labour demand is decreasing in more energy-intensive sectors such as manufacturing and construction, hence the unemployment rate is expected to increase to 9.4% this year. Italy has high levels of youth unemployment (23.7% as of Sep. 2022 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 51,062 by the IMF in 2022, just below the EU-27 average (USD 53,960).
| Main Indicators | 2020 | 2021 | 2022 | 2023 | 2024 |
| GDP (billions USD) | 1,891.06 | 2,101.28 | 1,996.93 | 1,991.01 | 2,059.41 |
| GDP (Constant Prices, Annual % Change) | -9.0 | 6.6 | 3.2 | -0.2 | 1.3 |
| GDP per Capita (USD) | 31,707 | 35,473 | 33,740 | 33,662 | 34,836 |
| General Government Balance (in % of GDP) | -6.0 | -5.1 | -5.7 | -3.6 | -3.6 |
| General Government Gross Debt (in % of GDP) | 155.3 | 150.9 | 147.2 | 147.1 | 146.1 |
| Inflation Rate (%) | -0.1 | 1.9 | 8.7 | 5.2 | 1.7 |
| Unemployment Rate (% of the Labour Force) | 9.3 | 9.5 | 8.8 | 9.4 | 9.3 |
| Current Account (billions USD) | 70.88 | 51.33 | -3.30 | 5.64 | 17.70 |
| Current Account (in % of GDP) | 3.7 | 2.4 | -0.2 | 0.3 | 0.9 |
Source: IMF – World Economic Outlook Database, October 2021
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 and is heavily reliant on the import of raw materials utilised in agricultural production due to the country’s limited natural resources (Italian imports of raw materials are responsible for more than 80% of the country’s energy). The primary sector employs 4% of the workforce (World Bank, latest data available), and is comprised of around 1.3 million farms of which almost half have a small agricultural output (European Commission). The country has 12.8 million ha of agricultural land and its 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 Eurostat, the value of Italian agricultural production in 2021 increased by 6% with a total output of EUR 61.2 billion (the second-highest in Europe after France).
Italy is a primary industrial country, with the secondary sector accounting for 22.5% of GDP and employing 26% 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 seventh-largest worldwide. Data by ISTA shows that in 2021 Italy’s industrial output grew by 11.8% year-on-year, overtaking its pre-pandemic level.
The service sector constitutes almost two-thirds of Italian GDP (65.2%) 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. Nevertheless, the sector did not return to its pre-COVID level yet (in the period Jul-Sep 2022 the number of visitors was still 4.7% lower than in 2019). 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.
| Breakdown of Economic Activity By Sector | Agriculture | Industry | Services |
| Employment By Sector (in % of Total Employment) | 3.9 | 25.9 | 70.2 |
| Value Added (in % of GDP) | 1.9 | 22.5 | 65.2 |
| Value Added (Annual % Change) | -1.3 | 13.5 | 4.8 |
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 Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.}}
Economic freedom in the world (interactive map)
Source: Index of Economic Freedom, Heritage Foundation
The business rankings model measures the quality or attractiveness of the business environment in the 82 countries covered by The Economist Intelligence Unit’s Country Forecast reports. It examines ten 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.
Source: The Economist Intelligence Unit - Business Environment Rankings 2020-2024
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Latest Update: March 2023
