Before the pandemic, the Italian economy was weak which limited its growth. However, in the subsequent recovery phase, Italy showed an extraordinary ability to react. Despite the uncertainties resulting from the invasion of Ukraine by Russia, the energy crisis and the monetary tightening, Italy has grown more than the other major European economies – also thanks to the support of the Pnrr – recording successes for work, exports and capital accumulation. Despite the improvement, there is still much to be done on the reform front to close structural gaps and address the challenges posed by demographic decline. The return of fiscal austerity could compromise some of the results achieved.
When Italy was the snail of Europe – Over the course of the 1910s, the Italian economy showed low growth, with GDP per capita which in 2019 was still 5.3% lower than the 2007 level, prior to the outbreak of the Great Crisis. Low growth has made Italians relatively less wealthy compared to Europe and, by putting stress on the ratio between public debt and GDP, has favored the sovereign debt crisis that erupted in 2011. The subdued tone of private investments has penalized productivity and digitalization of businesses, while public investments have collapsed. The critical factors of competitiveness have reduced the market shares of Made in Italy in the world.
Italy turns into a gazelle – With the recovery after the recession caused by the pandemic, the country has emerged from the swamp of stagnation of the first fifteen years of the 21st century, showing an extraordinary capacity for reaction and resilience. A system characterized by a widespread presence of micro and small enterprises (MPIs) – just think that those employed in MPIs are three times the sum of the employees in Italy of foreign and Italian multinational groups – while on the one hand it has suffered more from the recessive effects of crisis from Covid-19, on the other hand it has been able to react flexibly, generating value and stimulating more intense growth than the other major European countries.
Strong uncertainty following Russia’s invasion of Ukraine, an energy crisis that saw the cost of electricity and gas more than double in the fall of 2022, and a deflationary monetary squeeze of unprecedented intensity in the history of the Euro would have could have stopped the recovery of the Italian economy, but, surprisingly, this did not happen. Indeed, Italy continued to grow more than other major European countries, creating more than one million jobs in two years. Also thanks to the support of the Pnrr interventions, the Italian economy, second in Europe for manufacturing production, avoided recession while the German giant recorded a 0.3% drop in GDP in 2023, to stagnate (+0.2 %) this year.
The results – Let’s look in detail at some of the performances of the business system and the Italian economy in recent years. Between 2019 and 2023, GDP per capita in real terms in Italy cumulatively increased by 4.7%, a pace more than double the +2.1% of the Eurozone, and showing an improvement compared to the stagnation of France and Spain (+0.1%) and the decline in Germany (-1.0%). Although monetary policy has penalized the interest expenditure of the Italian budget, the highest on the European continent, economic growth has contained the dynamics of the burden of public debt: in the last four years the debt/GDP ratio has risen by 4.5 points in the Eurozone, by 12.7 points in France, by 9.5 points in Spain, but only by 3.1 points in Italy, which did better than the virtuous Germany (+4 points).
The success of Made in Italy was consolidated on foreign markets, with the volume of manufacturing exports rising by 8.6% in four years while it stagnated (-0.6%) in Germany and fell in France (- 3.8%).
The growth in business demand for labor in the last two years has led to an increase of 3.3 percentage points in the employment rate, larger than the increases of 2.1 points in the European average, 2.7 points in Spain, 1.6 points from Germany and 1.2 points from France. In the expansionary phase of the labor market, stable dependent employment of young people and women increases, as well as that located in the South. Still on the labor front, a high tax wedge persists, which however has decreased by 2.8 points in the last four years compared to smaller drops in Germany (-1.4 points) and France (-0.3 points) and the increase recorded in Spain (+0.8 points).
Despite the more severe increase in interest rates, thanks to lower household indebtedness and greater employment dynamics, between 2021 and 2023 Italy recorded a growth in consumer spending of 6.1%, more than double the +3.0% in Germany and +2.6% in France.
The support of fiscal policy has accelerated the trend of investments, a key asset for the digital and green transitions of companies. Between 2019 and 2023, investments in machinery and plants – net of means of transport – in Italy rose by 19.7%, a rate almost triple the Eurozone average, doing better than France (+10.1% ) and in contrast to the 3.2% drop observed in Germany. The propensity to invest accelerates compared to the +14.9% recorded in the previous four years, which was more in line with the +13.3% of the European average.
The prospects – Even in the face of these performances, the road to filling the structural delays of the Italian economy remains long, while the reform program should be intensified. High bureaucracy weighs heavily, while energy dependence is associated with high energy prices and renewable sources that are not yet fully exploited. Labor taxation, although decreased, remains high and weighs on the competitiveness of Made in Italy. Demography makes no concessions: Italy has an elderly population weight of 24.0%, 2.7 points higher than the average of already old Europe. In the last five years (2018-2023) the adult population of working age (20-64 years) has fallen by 1 million and 38 thousand units, equal to a drop of 2.9%, compared to the holding recorded in France (+ 0.2%) and Germany (0.3%) and the increase (+3.4%) observed in Spain. With a lower job offer, the shortage of manpower for companies increases: in the period under review the share of hard-to-find hires rose by almost twenty points, reaching 45.1% in 2023. The demographic composition unbalances spending on welfare: Italy is in third place in the European Union for public spending on social protection, but slips to twenty-second place for interventions in favor of families and young people. The management of migratory flows becomes essential. According to the latest forecasts from the International Monetary Fund, in the next five years the population in the European Union will increase by 2.4 million while that of Africa will increase by 181 million. In practice, in the space of just sixty months, three Italys will be born from the African platform.
Last but not leastwith the opening of an infringement procedure for excessive deficit and the application of the new rules of the Stability and Growth Pact, the return to a restrictive fiscal policy could put a sharp brake on the development processes of the Italian economy.
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