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Italy’s economy is the 8th among 185 countries in terms of nominal GDP at current prices. The country has been through a period of prolonged crisis, but GDP growth has turned to be positive again in 2015. Nevertheless, growth prospects remain relatively weak for both for 2018 and 2019 (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.
The current President of the Republic, Sergio Mattarella, was elected in January 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% and 17.5% respectively. At the beginning of May, after many failed attempts to find a government majority, Italy seemed on course for fresh elections. However, in an unexpected move, party leaders Di Maio (M5S) and Salvini (Lega) asked President Mattarella for more time to finalise a “government of change” agreement. On 1 June, 88 days from the election (a record in Italy for government formation), the “populist” M5S and Lega government led by Giuseppe Conte, a law expert with no previous political experience, was sworn in by the President. The Government subsequently passed votes of confidence in both Houses with a comfortable majority.
Conte’s platform is based on a German-style “contract” between M5S and Lega. Priorities include: confirmation of traditional alliances (NATO with the US as the “privileged ally”); softening on Russia with a view to lifting sanctions; no Euro-exit or debt-cancellation, but pushing for a review of fiscal rules; tougher stances on migration and corruption; a universal basic income and a rollback of controversial pension reforms. His Cabinet comprises eight M5S, six Lega and six independents. Di Maio and Salvini are both Deputy PMs. In addition to their portfolios, Di Maio will hold a new Labour and Economic Development role (a merger of ministries covering labour/welfare, energy, telecoms and trade) and will likely focus on M5S’ promise of a universal basic income. Salvini is also Interior Minister. He has prioritised on clamping down on migration and strengthening law and order.
In the international ranking of developed economies, Italy ranks 8th among 185 countries in terms of nominal GDP current prices. Italian GDP in 2017 was €1.716.238 million.Italy’s economic performance in Italy remains low, despite a moderate pick-up in growth prospects. According to the IMF World Economic Outlook Database, (April 2018), GDP grew by 1.5% in 2017, in line with the preliminary figure. Growth is expected to remain the same also in 2018 and to slow down at 1.1% in 2019. This is still the lowest rate among the biggest economies members of the IMF and the slowest growth rate among EU Member States. Throughout 2017 and 2018, domestic demand remained the main engine of growth as household consumption was supported by rising employment and consumer confidence. In addition, investment growth was bolstered by favourable financing conditions and tax credits but was also associated with a marked pick-up in exports of goods and services. In 2017, investment in plants and machinery increased substantially (+ 21.7%), together with investment in intellectual property products (+ 6.8%).
Although unemployment has fallen from 12.5% in 2014 to 11.0% in 2017, figures remain stubbornly high as reported by ISTAT (ONS equivalent). Youth unemployment has experienced a similar trend, although it remains notably high at 31.7% (Istat May 2018). The public debt increased to 2,256,061 million euro. The government debt-to-GDP ratio puts a heavy burden on the economy. In 2016, it increased to 132.8%, but it slightly decreased to 131,4% in 2017 (Istat 2018). The fiscal stance is projected to turn neutral in 2018. The 2018 budget repeals the VAT increase originally planned and appropriately extends the tax incentives for business investment and real estate improvements. It also introduces lower social security contributions for young people hired on a permanent basis, while allocating resources for raising civil servants’ wages (OECD).
The cost of borrowing for the government is slowly rising as a result of political uncertainty after an inconclusive general election in March 2018. After reaching 120 basis points in October 2017, the spread on German government bonds picked up again in May peaking at 320 bp on May 29. Italy’s sovereign rating might be further downgraded in summer 2018 should highly expansionary economic policies – as promised by the ruling government coalition – be implemented.
Italy’s banking sector has been facing some trouble over the last years. Italian banks have experienced a steady increase in non-performing loans, and the government was forced to rescue four small banks from bankruptcy at the end of 2015. In December 2016, with the inability to provide a private sector solution, the government established a €20 bn. precautionary fund for recapitalisation of troubled banks. Monte dei Paschi di Siena was the first bank to apply for those resources. As stated by the Bank of Italy’s report, the Italian banking system is gradually strengthening after a crisis that has struck our own country more intensively and for longer than the rest of Europe. The strengthening is highlighted by the progress of two indicators: the impact of net impaired loans on total loans (NPL ratio) and the ratio between the best-quality capital and risk-weighted assets (CET1 ratio). Between 2015 and 2017 the first indicator decreased from 10.8% to 7.6%; the second rose from 12.3% to 13.8%.
Many of Italy’s economic difficulties pre-date the crisis. Italy’s main economic problem remains the long lasting weak productivity. From 1995 to 2015 total factor productivity increased by just 0.3% against a EU average of 1.6% per year. Italian industrial production increased by 3% in 2017 with respect to the previous year, according to calendar-adjusted data. This was almost as twice as the 1.6% growth recorded in 2016 with respect to 2015. However, Italian industrial production has returned on a positive (albeit moderate) growth path. In Q2 2018 a + 0.6% increase is expected. While in the first quarter there had been a substantially static trend (-0.1%), the pick-up of the activity in March (+1.3%) almost entirely cancelled the drop occurred in the previous two months. Among sectors, consumer goods (+2.5%, +4.2% the durable consumer goods) continued to record the best improvement. The sectors which recorded the largest growth in March 2018, compared to March 2017 are electricity, gas and air (+ 11.9%), production of basic pharmaceuticals (+ 4.6%) and textiles, clothing and leather (+ 4.2%).
The corporate tax burden is the heaviest in Europe (64.8% on all corporate profits, 24.2 percentage points higher than the EU average, PwC’s 2016 Paying Taxes and levels of corruption and tax evasion are particularly high (tax evasion was estimated at €110 bn per year in the period 2011-14 (Guardia di Finanza). As the Italian Senate showed, in 2018, the effects of the so-called under-reporting in the tax returns raise the estimates of the absolute value of the total incomes in Italy between €124.5 billion and €132.1 billion. Italy’s black economy in 2014 amounted to €211 bn, corresponding to 13% of official GDP (ISTAT, 2016). In 2017 it just decreased to 12.6%. A complex bureaucracy, slow judicial system, high energy costs and an over-leveraged public sector add to these problems.
Because of these difficulties, Italy is not a straightforward country in which to do business. Italy lags behind the largest economies for Foreign Direct Investment (FDI) attractiveness (46th out of 190 nations in the World Bank’s 2017 Doing Business Index) and inward investments to Italy experienced a sharp decline during the economic crisis, €12.4 bn in 2013, 58% lower than in 2007. In 2015, both outward (equivalent to 25%) and inward (19%) FDI stocks as shares of GDP were low relative to other OECD countries and FDI are more outward oriened. Italy’s rate of return was 2.6% on its outward FDI, while the return to foreign investors in Italy was 3.5% in 2015.
In terms of the bilateral relationship, the UK attracts a large number of Italian investors each year, with 99 projects and 1,482 jobs created in 2016/17 sourced and tracked by DIT. Overall bilateral trade in goods was valued at £26 billion in 2017 (5.1%).
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. 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.
Please read the information provided on the terrorism page of the FCO 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