Italy: Economic and Political Overview
In this page: Economic Outline | Political Outline
Italy has a diversified economy, ranking as the third-largest in the Eurozone by GDP. After returning to its pre-COVID level in 2022, the country’s GDP grew by 0.7% in 2023 and kept a similar pace in 2024 as the unwinding of housing renovation tax credits weighed on construction activity, despite a pickup in infrastructure investment supported by the RRF. Net exports contributed positively to GDP growth, primarily due to a sharp contraction in goods imports. In 2025, the implementation of Italy’s RRP is expected to accelerate, largely offsetting the contractionary national fiscal stance. Private consumption is forecast to gain momentum, although overall investment is projected to decline due to reduced construction activity for housing renovations. By 2026, RRF-related spending and improved financing conditions are anticipated to boost investment, alongside continued growth in consumption. GDP growth is forecast to reach 1% in 2025 and 1.2% in 2026 (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 2024, Italy's general government deficit declined to 3.8% of GDP from 7.2% in 2023. 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. While the primary balance returned to a positive 0.1% of GDP, rising debt servicing costs pushed interest expenditure up to 3.9% of GDP. In 2025, the deficit is projected to decline further to 3.4% of GDP, with the primary surplus increasing to 0.5% 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 declining to 134.8% of GDP in 2023, the debt-to-GDP ratio is projected to rise during 2024-26, reaching 139.3% 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. Following the continued decline in energy prices until October 2024, headline inflation fell to 1% for the year, down from 5.7% in 2023 (official governmental data). Stable energy prices projected for 2025-26 are expected to keep HICP components subdued, except for services, where wage pressures will likely persist. Headline inflation is forecast at 1.9% in 2025 and 1.7% in 2026 (EU Commission).
In 2024, employment grew by 1.6%, down from 1.9% in 2023, with further deceleration expected in 2025-26. Rising labour market participation is projected to outpace the decline in the working-age population, pushing the unemployment rate down to 6.2% by 2026 from 7% in 2024. Nominal wage growth reached an estimated 4% in 2024, driven by contract renewals reflecting past price increases, and is expected to moderate gradually. 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 | 2023 (E) | 2024 (E) | 2025 (E) | 2026 (E) | 2027 (E) |
|---|---|---|---|---|---|
| GDP (billions USD) | 2,301.60 | 2,376.51 | 2,459.60 | 2,534.56 | 2,595.79 |
| GDP (Constant Prices, Annual % Change) | 0.7 | 0.7 | 0.7 | 0.9 | 0.6 |
| GDP per Capita (USD) | 39,012 | 40,287 | 41,714 | 43,020 | 44,108 |
| General Government Balance (in % of GDP) | -8.0 | -4.4 | -4.5 | -4.0 | -3.6 |
| General Government Gross Debt (in % of GDP) | 134.6 | 136.9 | 138.7 | 140.2 | 141.4 |
| Inflation Rate (%) | 5.9 | 1.3 | 2.1 | 2.0 | 2.0 |
| Unemployment Rate (% of the Labour Force) | 7.7 | 7.0 | 7.2 | 7.3 | 7.5 |
| Current Account (billions USD) | -0.33 | 25.73 | 35.01 | 40.56 | 51.16 |
| Current Account (in % of GDP) | -0.0 | 1.1 | 1.4 | 1.6 | 2.0 |
Source: IMF – World Economic Outlook Database, Latest data available.
Note : (E) Estimated data
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 2024, agricultural production and value added increased by 1.4% and 3.5% in volume, respectively. Production volumes rose notably in crop farming (+1.5%) and the livestock sector (+0.6%), while agricultural service activities declined (-1.5%). Secondary activities maintained a positive trend (+5.2%). It was a favorable year for fruit (+5.4%), fresh vegetables (+3.8%), and wine (+3.5%), but cereals (-7.1%), olive oil (-5%), and forage (-2.5%) 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 Confindustria, in the first nine months of 2024, Italian industrial production declined by 3.3% compared to the same period one year earlier. This was due to a sharp drop in the first quarter (-1.4% quarter-on-quarter), which gradually eased toward the end of spring (-0.9% in the second quarter). Despite this improvement, third-quarter data remained negative, with a further decrease of 0.6%.
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) | 3.6 | 26.6 | 69.8 |
| Value Added (in % of GDP) | 1.9 | 22.9 | 65.0 |
| Value Added (Annual % Change) | -3.5 | 0.3 | 1.0 |
Source: World Bank, Latest data available.
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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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The world rankings, published annually, measures violations of press freedom worldwide. It reflects the degree of freedom enjoyed by journalists, the media and digital citizens of each country and the means used by states to respect and uphold this freedom. Finally, a note and a position are assigned to each country. To compile this index, Reporters Without Borders (RWB) prepared a questionnaire incorporating the main criteria (44 in total) to assess the situation of press freedom in a given country. This questionnaire was sent to partner organisations,150 RWB correspondents, journalists, researchers, jurists and human rights activists. It includes every kind of direct attacks against journalists and digital citizens (murders, imprisonment, assault, threats, etc.) or against the media (censorship, confiscation, searches and harassment etc.).
The Indicator of Political Freedom provides an annual evaluation of the state of freedom in a country as experienced by individuals. The survey measures freedom according to two broad categories: political rights and civil liberties. The ratings process is based on a checklist of 10 political rights questions (on Electoral Process, Political Pluralism and Participation, Functioning of Government) and 15 civil liberties questions (on Freedom of Expression, Belief, Associational and Organizational Rights, Rule of Law, Personal Autonomy and Individual Rights). Scores are awarded to each of these questions on a scale of 0 to 4, where a score of 0 represents the smallest degree and 4 the greatest degree of rights or liberties present. The total score awarded to the political rights and civil liberties checklist determines the political rights and civil liberties rating. Each rating of 1 through 7, with 1 representing the highest and 7 the lowest level of freedom, corresponds to a range of total scores.
Political freedom in the world (interactive map)
Source: Freedom in the World Report, Freedom House
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