Italy flag Italy: Economic outline

Economic Outline

Economic Indicators

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, with growth returning to its pre-pandemic levels by Q2/2022. For 2023, the IMF estimated growth at 0.7% (from 3.7% one year earlier): after contracting by 0.4% q-o-q in the second quarter and being null in the third, the economy resumed growing as from the fourth quarter. Among the causes of the slowdown, there were the lingering impact of ECB monetary tightening, which persisted in affecting the borrowing costs of households, businesses, and the government. Real incomes have been undermined by sluggish wage growth and elevated inflation. Moreover, diminished demand for housing, coupled with the reduced backlog of projects approved under the discontinued "superbonus" tax scheme, has restricted construction activity, which had been the main key driver in the recent past. The growth rate is expected to remain unchanged in 2024 (0.7%), increasing marginally to 1% the following year thanks to the sustained rise in capital spending, which should be only partially influenced by a continued decline in housing investment.

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 2023, the IMF estimated the general government deficit at 2.1% of GDP (5.3% as per the EU Commission projections), as the diminished budgetary expense for measures addressed to contain the effects of high energy prices (1% of GDP, down from 2.4% in 2022) and housing tax credits (1.8% of GDP, down from 2.8%) was somewhat counterbalanced by elevated pension expenditures due to indexation to the 2022 inflation and a rise in investment. The IMF expects the deficit to hover around 3.4% of GDP over the forecast horizon. Italy has one of the highest debt-to-GDP ratios in the world: estimated at 147.3% in 2023, it should go down to 142.8% by 2025. Being a net importer of energy, Italy’s inflation was pushed by rising global energy costs, going beyond 8% in 2022 and to 6% in 2023. A gradual decline in inflation throughout 2024-25 is expected (to around 2.6%), driven by the reduction in energy prices and moderate growth in nominal wages.

Even in the face of a deceleration in economic activity, the unemployment rate – at 7.9% in 2023 - remains historically low. Employment continues to experience strong growth, and nominal wage growth has increased to approximately 3%. This is expected to bolster household incomes and contribute to sustained private consumption, with the unemployment rate remaining largely unchanged. Italy has high levels of youth unemployment (22% as of Oct. 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 54,259 by the IMF in 2022, just below the EU-27 average (USD 56,970).

 
Main Indicators 20222023 (E)2024 (E)2025 (E)2026 (E)
GDP (billions USD) 2,068.602,255.502,328.032,390.442,439.62
GDP (Constant Prices, Annual % Change) 4.00.90.70.70.2
GDP per Capita (USD) 35,04338,32639,58040,70141,612
General Government Balance (in % of GDP) -9.2-7.8-4.8-3.6-2.8
General Government Gross Debt (in % of GDP) 140.5137.3139.2140.4142.6
Inflation Rate (%) 8.75.91.72.02.0
Unemployment Rate (% of the Labour Force) 8.17.77.88.08.3
Current Account (billions USD) -30.073.4918.2231.5036.90
Current Account (in % of GDP) -1.50.20.81.31.5

Source: IMF – World Economic Outlook Database, 2016

Note: (e) Estimated Data

 
Monetary Indicators 20162017201820192020
Euro (EUR) - Average Annual Exchange Rate For 1 GBP 1.271.141.131.111.12

Source: World Bank, 2015

 

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Latest Update: June 2024

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