Guidance

Overseas Business Risk - Italy

Updated 11 March 2021

1. Overview

Italy’s economy is the 8th among 185 countries in terms of nominal GDP at current prices (World Bank). After four years of economic recovery, the economy turned into stagnation in 2019. Therefore, growth prospects remain relatively weak both for 2019 and 2020 (slowest among EU members). On the political side, elections were held in March 2018 and led, to a new majority formed by the anti-establishment Five Star Movement (M5S) and far-right Lega.

2. Political

The current President of the Republic, Sergio Mattarella, was elected in February 2015. His term in office expires in 2022. Parliament has legislative powers and is composed of a Senate (315 seats) and a Chamber of Deputies (630), both directly elected and with equal authority.

The 4 March 2018 general election resulted in a hung parliament. Voters swung away from the two parties, which dominated Italian politics for the past 25 years: Berlusconi’s Forza Italia and the left-leaning Partito Democratico (PD), rewarding the anti-establishment Five Star Movement (M5S) and far-right Lega who won 33% (ranking 1st) and 17.5% (ranking 3rd) respectively.

The current Cabinet (Italy’s 67th and the third in this legislature) has been in office since 13 February 2021. It is headed by Prime Minister Mario Draghi, a former President of the European Central Bank. The Cabinet was formed following the resignation of former Prime Minister Giuseppe Conte in the midst of a political crisis internal to his majority.

After consultations with the political parties, President Sergio Mattarella charged Draghi with the task of forming a “high-profile” government, appealing to all political forces for their support. The new government would have the main aim of tackling the health, economic and social crisis in the country related to the COVID-19 pandemic, and managing the European relief funds associated to it (the Next Generation EU, of which Italy is the largest recipient with €209bn).

Described as a national unity government, the Draghi Cabinet is composed by politicians and independent technocrats and is supported by a large, multi-partisan majority in the Italian Parliament, including the anti-establishment Five Star Movement (M5S), Salvini’s right-wing Lega, Berlusconi’s centre-right Forza Italia (FI), Zingaretti’s centre-left Democratic Party (PD), Renzi’s centrist Italia Viva (IV), and Speranza’s leftist Liberi e Uguali (LeU). Meloni’s far-right Fratelli d’Italia (FdI) remains opposed and continues to call for elections.

Draghi’s priorities are: internationally, a Europeanist and Atlanticist approach; domestically, an acceleration of the vaccination programme; completion and delivery of the Recovery Plan; civil justice, public administration and tax reforms. Strong emphasis on education/next generation, the environment (with the establishment of a Ministry for the Ecological Transition) and social cohesion.

3. Economic

Italy ranks 8th among 185 countries in terms of nominal GDP at current prices. Italian GDP in 2019 was €1,787,664 million (ISTAT 2019). The COVID-19 pandemic interrupted a phase of slow-to-moderate GDP growth characterised by weak productivity performance. According to the national statistical agency (ISTAT) Italian GDP shrank by 8.8% in 2020, the fourth largest decline in the EU (European Commission).

At time of writing, the economy is expected to return to growth of 3.0% in 2021 according to the IMF (World Economic Outlook Update, January 2021) and 3.4% according to the European Commission (Winter 2021 Interim Forecast).

Domestic demand fell significantly in 2020 (estimated -7.5 percentage points net of inventories) but is expected to make a positive contribution in 2021. The contraction in foreign demand (estimated -1.2 percentage points) had a negative impact in 2020 given the traditional role of Italy’s export sectors as drivers of GDP and productivity growth, but this is also expected to improve in 2021. Expenditure by the Public Administration increased 2 percentage points in 2020 and is expected to continue increasing (+0.1 percentage points) in 2021 (ISTAT 2020).

A large stock of public debt puts a heavy burden on Italian public finances and the real economy. In Q3 2020, the public debt-to-GDP ratio was 154.2% (EUROSTAT), up from 134.3% in 2019. Latest official forecasts expected public debt is forecast to reach 158% GDP by end 2020 before declining slowly in coming years. Having fallen gradually from 5.1% GDP in 2009 to 1.6% GDP in 2019, the net public borrowing requirement was officially forecast to reach 10.5% GDP in 2020 before falling to 8.8% in 2021 and declining towards 3.0% in 2023.

In the context of the COVID-19 pandemic, the government allocated €108bn to direct economic support measures in 2020 including to fund large-scale furlough schemes, business grants, personal and business tax reliefs, and additional funding for public services and local/regional authorities (Ministry of Economy and Finance (MEF)), with a further €32bn of extraordinary funding so for expected in 2021 (MEF, January 2021).

It has also provided backing for a programme of guarantees and payments holidays on bank loans worth approximately €450bn in order to maintain private sector liquidity (MEF, February 2021).

Overall, government spending in 2021 is expected to be around €1.1tn, and the 2021 budget includes a further €39bn of expansionary measures. Italy’s sovereign rating is currently stable with three of four credit rating agencies.

The health of Italy’s banking sector has improved gradually since the European Sovereign Debt Crisis, the value on non-performing in the system falling from €88.8bn in November 2015 to €23.6bn in November 2020 (-73.5%). According to the official projections of the Italian government, in 2020 Italy’s overall tax burden was equivalent at 42.4% of national income, the sixth highest in the EU and 1.4% above the European average. It was expected to increase by 0.1% in 2020 and 0.5% in 2021 to reach 43%.

Research by the National Council of Accountants indicates that, when the effects of tax evasion and the grey economy are accounted for, the real tax burden is closer to 48.2%.

Levels of corruption and tax evasion remain high compared to other Western European countries, although efforts undertaken by tax collection authorities in recent years have started to bring about positive results (NADEF 2020).

Italy’s black economy in 2018 amounted to €211bn, corresponding to 11.9% of official GDP. Compared to 2017, it decreased by about €3bn. (ISTAT, 2018). In 2015-2018, non-regular work decreased by about 47 thousand units (-1.3%), while regular work grew by 723 thousand units (+ 3, 7%), resulting in a drop in irregularity from 15.8% in 2015 to 15.1% in 2018. (ISTAT 2020).

Italy lags behind the largest economies for Foreign Direct Investment (FDI) attractiveness (58st out of 190 nations in the World Bank’s 2020 Doing Business Index. Inward investment increased in 2019 (+1.4%).

In terms of the bilateral relationship, the UK attracts a large number of Italian investors each year, with 1,852 new projects and 837 jobs created in 2019/20 sourced and tracked by DIT. Total trade in goods and services (exports plus imports) between the UK and Italy was £36.1 billion in the four quarters to the end of Q3 2020, a decrease of 19.8% or £8.9 billion from the four quarters to the end of Q3 2019. Italy was the UK’s 10th largest trading partner in the four quarters to the end of Q3 2020 accounting for 3.0% of total UK trade (DIT – source: ONS).

The UK attracts a large number of Italian investors each year. In FY 2019-20 DIT Italy sourced and tracked 78 investment projects, which supported 837 new jobs and 1,084 existing jobs, over a business cycle spanning over 3 years DIT.

UK outward FDI stock: In 2019, the stock of FDI from the UK in Italy was £19.1 billion, 34.5% or £4.9 billion higher than in 2018. In 2019, Italy accounted for 1.3% of the total UK outward FDI stock. In 2019, the total UK FDI abroad was £1.5 trillion.

UK inward FDI stock: In 2019, the stock of FDI from Italy in the UK was £6.8 billion, 10.3% or £637 million higher than in 2018. In 2019, Italy accounted for 0.4% of the total UK inward FDI stock.

In 2019, the total FDI in the UK was £1.6 trillion (DIT – source: ONS).

Read further information about bilateral trade, business opportunities and challenges in the Italian market in our exporting to Italy guide.

4. Business and human rights

Italy’s international commitment is based on an approach of open dialogue which is respectful of diversity and founded on the principle of universal human rights. This goes hand-in-hand with Italy’s support for the least advantaged nations through social and economic development programmes.

As a member of the United Nations, Italy makes use of a series of bilateral and multilateral instruments in order to strengthen shared standards in the field of human rights and monitor compliance. These include the UN Guiding Principles on Business and Human Rights whose implementation is led by the MFA Interministerial Committee for Human Rights.

Italy is also a member of the International Labour Organization (ILO) and transposes its directives. In terms of recent changes to domestic human rights legislation, Italy does not recognise same-sex marriage, however in February 2016 the Italian Senate approved a bill recognising civil unions for same-sex couples with rights similar to those deriving from a marriage, including pensions claims. The bill was finally approved by the Italian Chamber of deputies in April 2016.

In July 2017 the Italian Parliament approved a bill making torture a crime in national law. The introduction of a law on torture was pending since 1988 when Italy ratified the 1984 UN Convention against Torture which obliged ratifying countries to criminalise torture in their national legislations.

For more information on Italy’s human rights policy visit the Ministry for Foreign Affairs website.

5. Bribery and corruption

Bribery is illegal. It is an offence for British nationals or someone who is ordinarily resident in the UK, a body incorporated in the UK or a Scottish partnership, to bribe anywhere in the world.

In addition, a commercial organisation carrying out business in the UK can be liable for the conduct of a person who is neither a UK national or resident in the UK or a body incorporated or formed in the UK. In this case it does not matter whether the acts or omissions which form part of the offence take place in the UK or elsewhere.

Read the information provided on our bribery and corruption page.

Bribery and corruption represent major problems. Public tenders are generally regarded as the most at risk of corruption, particularly those associated with procurement, waste management, construction, health and defence. To prevent corruption, businesses participating in public tenders are required to produce very detailed information and documentation. The country has a National Anti Corruption Authority and legislation which is aligned with relevant international standards. A new, more restrictive anti-corruption law re-introducing false accounting as a crime and turning money laundering into a crime was approved by parliament in May 2015 and implemented in July 2015.

More recent steps at domestic level include the introduction in November 2018 of a new Anti-Corruption legislation further strengthening measures to fight corruption (I.e. preventing individuals convicted of corruption crimes from doing business with Public Authorities; disqualification from public office for those convicted of corruption crimes; and publication of political party funding sources of over 500 Euros).

In May 2019, UNCAC (United Nations Convention on Anti-Corruption) issued its second evaluation report on Italy covering the 2015-2019 period. The report had a largely favourable outcome and a positive impact on Italy’s image and reputation. Progress made in the fight against corruption in all its forms and some good practices were also recognized.

6. Terrorism

Please read the information provided on the terrorism page of the FCDO Travel Advice.

7. Intellectual property

To protect their intellectual property rights (IPR) abroad, exporters should obtain professional advice about protection for patents, designs and trademarks in any country where they have a potential.

Italy is at the forefront of European IPR developments and has adopted modern and up-to-date intellectual property protection practices. Recent innovations include introducing new measures to combat counterfeiting, protection for internet-related intellectual property, merging and simplifying patent and trademark rules.

Foreign companies investing in the Italian market can rely on the same legal protection of IPR granted to Italian companies. These rights extend to patents, trademarks, copyright and designs. Applications for IP protection should be done through the Italian Patent Office of the Ministry for Economic Development. The Ministry and other Italian authorities are also seriously committed to the fight against traders of counterfeited goods.

8. Protective security/organised crime

Organised crime groups are well established in Italy. The legitimate and illegitimate opportunities that arise from Italy’s strategic position at the heart of the Mediterranean and as the 3rd largest economy in the Eurozone mean that organised crime still has a strong foothold in Italian society in spite of the serious and effective commitment of authorities. That said, most organised crime syndicates tend to avoid contact with non-Italian companies.

Italy has four forms of organised crime; N’drangheta, Cosa Nostra, Camorra and Sacra Corona Unita. These groups dominate the criminal market in Italy and reach into continental Europe and South America. There is some evidence that they have successfully infiltrated the legitimate market place to launder the proceeds of their crimes and invest in legitimate businesses.

This scope and reach, although limited, has an undermining effect against the economic infrastructure of Italy and several other European states, including the UK. The activities of Italian organised crime groups are diverse, comprehensive and global in scale. They include drug trafficking, fraud, bribery and corruption, high end money laundering, modern slavery and human trafficking. The strength and competence of the Italian authorities to combat organised crime allows for significant action to minimise the effects on legitimate business.

9. Contact us

For businesses wishing to follow up on any queries, please send an email to DIT Italy

10. Useful links

• British Consulate General Milan
• Italy Trade Agency
• Ministry of Economic Development