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Country profile - Italy

Overview 1

Economy

GDP : Italy belongs to the group of the seven biggest industrialised economies of the world and its GDP ranks fourth in the European Union after Germany , France and the UK . Its GDP per capita at Purchasing Power Parity amounted in 2004 to $ 27.014 a year 2 matching that of its major trade partners:
Germany , $ 27.825; France , $ 29.609; UK , $ 27.490

Growth rate : Since June 2001 the Italian economy entered a phase of sluggish growth, showing signs of stagnation during 2002 , slow recovery in the second half of 2003 and 2004 and fell into recession in 2005 (GDP decreased of 0,5% in the first half of the year).

Tab.1 : GDP percentage growth in four major EU countries 3

Country 2000 2001 2002 2003 2004
France 4,2% 2,1% 1,2% 0,2% 2,1%
Germany 2,9% 0,9% 0,2% - 0,1% 1,2%
UK 3,8% 2,2% 1,7% 2,3% -
Italy 3,2% 1,8% 0,4% 0,4% 1,3%

Two key internal factors on the demand side have prevented Italian GDP to grow considerably in the last two years:

  1. the negative trend of Italian exports which is slowly eroding the country's export quota, as a consequence of a general loss of competitiveness in the key sectors of the economy;
  2. stagnating investments.

Total Italian exports in the world diminished by 4 % in 2003 and increased considerably in 2004 (+ 6%) but the Italian quota on world export diminished from 4,3% in 1996 to 3,9% in 2004 4.

No growth is expected in 2005 as the economy fell into recession in the first semester of the year (- 0,5%).

Key economic sectors: 5Italy 's economic structure is very similar to that of other high-income OECD members with a preponderant services sector and a strong export oriented industry sector.

Services account for 68% of the GDP, industry for about 30% and agriculture for 2%.

The backbone of the Italian economy is the manufacturing sector which is basically organised in clusters of small and medium sized enterprises mostly located in the regions of northern and central Italy . The family owned SMEs are very much export oriented as most of them are world-wide producers of high quality consumer goods (clothing, kitchen equipment and white goods). The manufacturing sector accounts for about 25% of the GDP and 90% of total exports.

Inflation : 6 despite the EMU convergence process, and the adoption of deflationary policies by the last governments, Italy remains in the EU context a prone inflation country. The consumer price index registered in May 2005 showed a lower than expected increase: + 1,9%.

Unemployment: 7 the unemployment rate registered in the first semester of 2005 was 8,2% but regional differences remain very strong, with the southern regions showing sensibly higher unemployment rates than the rest of the country

The average unemployment rate is slowly diminishing, notwithstanding the weak economic growth, due to the increasing use of flexible forms of contracts.

Foreign trade: 8Italy 's current account balance has been steadily worsening since 1996 and the country's world export quota decreased constantly after reaching a peak of 5% in 1992.

In 2004 the country was the 8 th world biggest exporter with a world market share of 3,9% and even if total exports have increased by 6% in the same year, the country competitive position vis a vis the other major industrial countries is worsening.

Three key phenomena are considered to have caused the decline of Italian market shares on the world market:

  1. the pegging of the national currency to the fixed exchange rate established by the European Central Bank in 1998 and the consequent introduction of the Euro have prevented Italy from devaluating to gain price competitiveness (as it was often the case in the past);
  2. the gradual shift of the world trade and production in the traditional sectors towards emerging countries and the weakness of Italian companies in the faster growing high value added sectors;
  3. positive inflation differential in comparison to its main trade partners.

Italy 's highest quotas on world exports in 2003 were concentrated in traditional sectors where competition of low cost countries is higher, and the growth rate of world turnover is lower:

Industrial manufactures accounted in 2003 for 96,6% of Italian exports , machinery including white goods for 20,2%, chemical products for 9,9%, ICT products for 8,9% metallurgical industry products for 8,2% transport equipment for 8,1%.

The main import products in the same year were in ICT goods (14,1%), chemical products (12.8%), transport equipment (11,4%), and raw materials (10,8%).

Main trade partners in 2004 in percentage on total flows 9:

Inward Foreign Direct Investments: Italy is the 14 th world biggest recipient of foreign direct investments (FDI) behind all the other G7 members (except for Japan ), its major economic partners, several developing countries (like China and Brazil ) and some smaller economies ( Hong Kong , Spain and the Benelux ).

Tab. 3 Main Recipient countries of FDI 10

Country Percentage share on world total stock of FDI
- average 1990 –2001-
USA 17,1%
UK 8,1%
Germany 5,7%
China 5,6%
Hong Kong 5,4%
France 5,1%
Benelux 3,9%
Brazil 2,9%
Canada 2,8%
Spain 2,7%
Irland 2,0
Mexico 1,9%
Australia 1,6%
Italy 1,6%

Outward Direct Investments : the country held in the year 2002 the 12 th position in the world as outward investor 11.

Italian investments abroad are mostly concentrated in the following sectors:

The most considerable Italian FDI in terms of turnover are directed towards the following countries of destination: France , Germany , USA , Spain , UK and Brazil .

In terms of number of investments, the highest concentration of Italian investments are directed towards the Balkans where companies look for cheaper production factors: these investments originate mainly from the so called “industrial districts” of northern and central Italy 12.

Tab.4 Italy 's inward and outward FDI

Flows in millions of $

1998 1999 2000 2001 2002
Inward 2.635 6.911 13.375 14.871 14.545
Outward 12.407 6.722 12.316 21.472 17.123

Stocks in millions of $

1998 1999 2000 2001 2002
Inward 57.985 63.456 113.047 107.921 126.481
Outward 57.261 97.042 180.275 182.375 194.498
  1. [indietro] ISTAT, 2003;
  2. [indietro] The Economist Intelligence Unit
  3. [indietro] „L'Italia nell'economia internazionale“: Rapporto ICE-ISTAT 2003-2004
  4. [indietro] Bollettino trimestrale ICE-MAP Aprile 2005
  5. [indietro] The Economist Intelligence Unit
  6. [indietro] ISTAT 2003
  7. [indietro] ISTAT 2003
  8. [indietro] „L'Italia nell'economia internazionale“: Rapporto ICE-ISTAT 2003-2004
  9. [indietro] Bollettino trimestrale ICE-MAP Aprile 2005
  10. [indietro] „L'Italia nell'economia internazionale“: Rapporto ICE-ISTAT 2003-2004
  11. [indietro] „L'Italia nell'economia internazionale“: Rapporto ICE-ISTAT 2003-2004
  12. [indietro] „L'Italia nell'economia internazionale“: Rapporto ICE-ISTAT 2003-2004

 

© 2004, 2005 Camera di Commercio Italiana per la Germania
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